10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number 1-11397

Valeant Pharmaceuticals International

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code:

(949) 461-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common stock, $.01 par value (Including associated preferred stock purchase rights)	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

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

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

The aggregate market value of the Registrant’s voting stock held by non-affiliates of the Registrant on June 29, 2007, the last business day of the Registrant’s most recently completed second fiscal quarter based on the closing price of the common stock on the New York Stock Exchange on such date, was approximately $1,564,383,392.

The number of outstanding shares of the Registrant’s common stock as of March 11, 2008 was 89,286,410.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in Valeant Pharmaceuticals International’s definitive Proxy Statement for the 2008 annual meeting of stockholders is incorporated by reference into Part III hereof.

TABLE OF CONTENTS

			Page
PART I
		Forward-Looking Statements		4
	Item 1.	Business		4
	Item 1A.	Risk Factors		16
	Item 1B.	Unresolved Staff Comments		23
	Item 2.	Properties		23
	Item 3.	Legal Proceedings		23
	Item 4.	Submission of Matters to a Vote of Security Holders		23
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		24
	Item 6.	Selected Financial Data		26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		56
	Item 8.	Financial Statements and Supplementary Data		58
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		116
	Item 9A.	Controls and Procedures		116
	Item 9B.	Other Information		118
PART III
	Item 10.	Directors and Executive Officers of the Registrant		119
	Item 11.	Executive Compensation		119
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		119
	Item 13.	Certain Relationships and Related Transactions		119
	Item 14.	Principal Accounting Fees and Services		119
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		120
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.32
EXHIBIT 21
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

1

Explanatory Note

This annual report on Form 10-K includes the restatement of our consolidated financial statements as of and for the years ended December 31, 2006 and 2005. This report also includes the restatement of the selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003 and the restatement of the quarterly financial data in Part II, Item 8 for the three-month periods ended March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007 and September 30, 2007.

As announced in our current report on Form 8-K which we filed with the Securities and Exchange Commission, or SEC, on March 3, 2008, we concluded that our previously filed financial statements should no longer be relied upon due to certain errors in the accounting for foreign operations which were identified during the preparation process for this annual report on Form 10-K, and primarily arose during the period January 1, 2002 to September 30, 2007. These included errors impacting annual periods prior to 2007 with a cumulative net charge to income from continuing operations before income taxes of $3,851,000 as of December 31, 2006. The errors also included items originating in the first, second and third quarters of 2007 with a net benefit to income from continuing operations before income taxes of $1,761,000. These errors have been determined to be, in the aggregate, material to the quarter and year ended December 31, 2007 and to certain prior periods including the year ended December 31, 2006, and therefore we are restating our results for the years ended December 31, 2003, 2004, 2005 and 2006. The errors and the cumulative net effect of the corrections through December 31, 2006 and for the nine months ended September 30, 2007 are described as follows and summarized in the table below:

i. Increase in reserves for anticipated product returns based on historical trends and for certain credit memos in Latin America, the cumulative effect of which is a reduction in revenue of $3,953,000 and certain other adjustments of $127,000 through December 31, 2006 and $1,120,000 for the nine months ended September 30, 2007;

ii. Decrease in revenues associated with sales to certain customers in Italy where preexisting rights of return became known in the fourth quarter of 2007, the cumulative effect of which is a reduction of revenues of $290,000 through December 31, 2006 and $1,550,000 for the nine months ended September 30, 2007;

iii. Decrease in costs of goods sold related to bookkeeping errors in recording inventory costing and manufacturing variances in the UK and France, the cumulative effect of which is a reduction in cost of goods sold and a corresponding increase in gross profit of $4,710,000 for the nine months ended September 30, 2007, with no effect prior to January 1, 2007;

iv. Changes in pension expense in UK, Netherlands, Switzerland and Germany resulting from incorrect application of Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, the cumulative effect of which is a decrease in general and administrative expenses of $519,000 through December 31, 2006 and an increase to general and administrative expenses of $279,000 for the nine months ended September 30, 2007; and

v. Changes in income tax expense resulting from the income tax effects of the pre-tax adjustments described in i.-iv. above, resulting in a reduction in income tax expense of $1,331,000 through December 31, 2006 and an increase of $611,000 for the nine months ended September 30, 2007. Additionally, income tax expense increased due to corrections of deferred income taxes in certain foreign locations, resulting in a cumulative increase in income tax expense of $825,000 through December 31, 2006.

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	Nine Months																		Total
	Ended																		Additional
	September 30,			Year Ended December 31,															Income
Income (Expense)	2007			2006			2005			2004			2003			Pre-2003			(Expense)
	(In thousands)
Returns reserve and credit memos in Latin America	$	(1,120	)	$	(1,554	)	$	(371	)	$	1,389		$	(121	)	$	(3,423	)	$	(5,200	)
Reversal of revenue in Italy		(1,550	)		(290	)		—			—			—			—			(1,840	)
Cost of goods bookkeeping in the UK and France		4,710			—			—			—			—			—			4,710
European pension accounting		(279	)		1,401			(256	)		(220	)		391			(797	)		240
Total impact before taxes		1,761			(443	)		(627	)		1,169			270			(4,220	)		(2,090	)
Tax effect on above		(611	)		204			139			(422	)		(87	)		1,497			720
Other deferred tax items		—			(764	)		(61	)		—			—			—			(825	)
Total impact of restatement	$	1,150		$	(1,003	)	$	(549	)	$	747		$	183		$	(2,723	)	$	(2,195	)

The restatement and its impact on fiscal years ended December 31, 2006 and 2005 are discussed in more detail in Note 2 to our consolidated financial statements, which are included herein.

While we have restated the unaudited quarterly information in Part II, Item 8 and intend to amend and restate our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, we have not amended and do not intend to amend any of our other previously filed reports. As we have previously announced, the consolidated financial statements and related information contained in such previously filed reports should no longer be relied upon.

Identification of Material Weakness

In connection with this restatement, we identified a material weakness in our disclosure controls and procedures and internal controls over financial reporting as of December 31, 2007 and reported this to our Finance and Audit Committee. The material weakness, which arose primarily as a result of our lack of a sufficient complement of personnel in our foreign locations and monitoring controls at the corporate level and is further described below in Item 9A of this Form 10-K, resulted in the restatement of our prior period financial information included in this report. We are in the process of identifying and implementing a plan to address the material weakness in internal control over financial reporting. This remediation is discussed in more detail in Item 9A. For this reason, the discussion and data set forth in this section may not be comparable to discussions and data in our previously filed reports.

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Forward-Looking Statements

In addition to current and historical information, this report contains forward-looking statements. These statements relate to our future operations, future ribavirin royalties, prospects, potential products, developments and business strategies. Words such as “expects,” “anticipates,” “intends,” “plans”, “should,” “could,” “would,” “may,” “will,” “believes,” “estimates,” “potential,” or “continue” or similar language identify forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those contemplated by the forward-looking statements. Factors that might cause or contribute to these differences include, but are not limited to, those discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and sections in other documents filed with the Securities and Exchange Commission (“SEC”), under similar captions. You should consider these in evaluating our prospects and future financial performance. These forward-looking statements are made as of the date of this report. We disclaim any obligation to update or alter these forward-looking statements in this report or the other documents in which they are found, whether as a result of new information, future events or otherwise, or any obligation to explain the reasons why actual results may differ.

Aclotin, Bedoyecta, Bisocard, Cesamet, Dalmane/Dalmadorm, Dermatix, Diastat, Diastat AcuDial, Efudex/Efudix, Espacil, Espaven, Kinerase, Librax, Mestinon, Migranal, Nyal, Oxsoralen/Oxsoralen-Ultra, Solcoseryl, Tasmar, Virazole and Zelapar are trademarks or registered trademarks of Valeant Pharmaceuticals International or its related companies or are used under license. This annual report also contains trademarks or trade names of other companies and those trademarks and trade names are the property of their respective owners.

PART I

Item 1.   Business

Introduction

We are an international pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Historically, our marketing and promotion efforts focused on our Promoted Products, which consisted of products marketed globally, regionally, or locally with annual sales in excess of $5,000,000. Our products are currently sold in more than 100 markets around the world.

Although historically we have focused most of our efforts on neurology, dermatology, and infectious disease, our prescription pharmaceutical products also treat, among other things, neuromuscular disorders, cancer, cardiovascular disease, diabetes and psychiatric disorders. Our products are sold through three pharmaceutical segments comprising: North America, International (Latin America, Asia, and Australasia) and EMEA (Europe, Middle East, and Africa).

Strategic Review and Restructuring

In October 2007, our board of directors initiated a strategic review of our business direction, geographic and commercial operations, product and business portfolio, growth opportunities, and acquisition strategy. This strategic review, which we refer to as the “2008 Strategic Review,” is still underway as of the date of this filing and we expect to describe it in an announcement in late March 2008. We expect the 2008 Strategic Review to lead to significant changes in our business and will include a restructuring program.

Prior to the start of the 2008 Strategic Review, we reviewed our portfolio for products and geographies that did not meet our growth and profitability expectations and divested or discontinued certain non-strategic products as a result. In September 2007, we decided to sell our rights to Infergen. We sold these rights to Three Rivers Pharmaceuticals, LLC on January 14, 2008. In 2007, we also sold product rights to Reptilase, Solcoseryl in Japan, our ophthalmic business in Holland, and certain other products. In December 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd. (“Invida”) to sell Invida certain of our subsidiaries and product rights in Asia, in a transaction that includes certain of our subsidiaries, branch offices, and commercial rights in Singapore, the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This

4

transaction also includes certain product rights in Japan. We closed this transaction on March 3, 2008. The assets sold to Invida have been classified as “held for sale” in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as of December 2007.

We announced on February 4, 2008 that our board of directors had appointed J. Michael Pearson to the position of chief executive officer and chairman of our board of directors effective February 1, 2008, the date of the resignation of our former chief executive officer, Timothy C. Tyson. Robert A. Ingram, who served as chairman prior to Mr. Pearson’s appointment, remains on our board of directors, serving as lead director. Prior to joining Valeant as our chief executive officer, Mr. Pearson was a director at McKinsey & Company, where he had recently served as head of the global pharmaceutical practice, as a member of its board of directors and in various other capacities.

Our internet address is www.valeant.com. We post links on our website to the following filings as soon as reasonably practicable after they are electronically filed or furnished to the SEC: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Act of 1934. All such filings are available through our website free of charge. Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Retigabine — RESTORE 1 Data Announcement

On February 12, 2008, we reported results for retigabine in RESTORE 1, the first of two Phase III pivotal trials using retigabine as an adjunctive treatment for adult epilepsy patients with refractory partial-onset seizures. RESTORE 1 evaluated the 1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo in patients taking stable doses of one to three additional anti-epileptic drugs. Retigabine demonstrated statistically significant results on the primary efficacy endpoints important for regulatory review by both the US Food and Drug Administration (FDA) and the European Medicines Evaluation Agency (EMEA). More details on the RESTORE 1 data announcement are provided in Item 7, Products in Development.

Taribavirin — 12-week analysis of the Phase IIb study

On March 17, 2008 we reported the results of the 12-week analysis of the taribavirin Phase IIb study. The Phase IIb study is a U.S. multi-center, randomized, parallel, open-label study in 278 treatment naïve, genotype 1 patients evaluating taribavirin at 20 mg/kg, 25 mg/kg, and 30 mg/kg per day in combination with pegylated interferon alfa-2b. The control group is being administered weight-based dosed ribavirin (800/1,000/1,200/1,400 mg daily) and pegylated interferon alfa-2b. The 12-week early viral response (EVR) data from the Phase IIb study showed comparable reductions in viral load for weight-based doses of taribavirin and ribavirin. The anemia rate was statistically significantly lower for patients receiving taribavirin in the 20mg/kg and 25mg/kg arms versus the ribavirin control arm. More details on the taribavirin Phase IIb study announcement are provided in Item 7, Products in Development. We are using the data to explore the options for the continued role of taribavirin in our portfolio, including consideration of partnering opportunities.

Infergen (Reported in Discontinued Operations)

On December 30, 2005, we acquired the U.S. and Canadian rights to the hepatitis C drug Infergen from InterMune. In September 2007, we decided to divest these Infergen product rights and we sold them to Three Rivers Pharmaceuticals, LLC on January 14, 2008. The results of the Infergen operations and the related financial position have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

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Ribavirin Royalties

Our royalties are derived from sales of ribavirin, a nucleoside analog that we discovered. In 1995, Schering-Plough licensed from us all oral forms of ribavirin for the treatment of chronic hepatitis C. We also licensed ribavirin to Roche in 2003. Roche discontinued royalty payments to us in June 2007 when the European Patent Office revoked a ribavirin patent which would have provided protection through 2017.

Ribavirin royalty revenues were $67,202,000, $81,242,000 and $91,646,000 for the years ended December 31, 2007, 2006 and 2005, respectively, and accounted for 8%, 9% and 11% of our total revenues in 2007, 2006 and 2005, respectively. Royalty revenues in 2007, 2006 and 2005 were substantially lower than those in prior years. This decrease had been expected and relates to: 1) Roche’s discontinuation of royalty payments to us in June 2007, 2) Schering-Plough’s market share losses in ribavirin sales, 3) reduced sales in Japan from a peak in 2005 driven by the launch of combination therapy and 4) further market share gains by generic competitors in the United States since they entered the market in April 2004.

We expect ribavirin royalties to continue to decline in 2008. The royalty will decline significantly in 2009 in that royalty payments from Schering-Plough will continue for European sales only until the ten-year anniversary of the launch of the product, which varied by European country and started in May 1999. We expect that royalties from Schering-Plough in Japan will continue after 2009.

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The following table summarizes sales by major product for each of the last three years (dollar amounts in thousands). It includes any product with annualized sales of greater than $10,000,000 and currently promoted products with annualized sales of greater than $5,000,000. It is categorized by therapeutic class.

							% Increase (Decrease)
Therapeutic Class/Product	2007		2006		2005		07/06			06/05
			(Restated)		(Restated)
Neurology
Mestinon(P)	$	53,012	$	47,625	$	43,535		11	%		9	%
Diastat AcuDial(P)		51,264		50,678		47,631		1	%		6	%
Cesamet(P)		30,173		18,985		10,009		59	%		90	%
Librax		17,170		14,835		18,159		16	%		(18	)%
Migranal(P)		13,534		11,592		12,949		17	%		(10	)%
Dalmane/Dalmadorm(P)		11,432		10,957		12,277		4	%		(11	)%
Tasmar(P)		10,262		6,534		5,829		57	%		12	%
Melleril(P)		8,206		6,431		3,068		28	%		110	%
Zelapar(P)		5,747		3,981		—		44	%		NM
Other Neurology		66,677		63,033		57,431		6	%		10	%
Total Neurology		267,477		234,651		210,888		14	%		11	%
Dermatology
Efudix/Efudex(P)		71,714		78,336		60,177		(8	)%		30	%
Kinerase(P)		30,126		28,929		22,265		4	%		30	%
Dermatix(P)		14,043		10,139		9,187		39	%		10	%
Oxsoralen-Ultra(P)		12,377		10,527		9,365		18	%		12	%
Other Dermatology		39,059		42,023		38,252		(7	)%		10	%
Total Dermatology		167,319		169,954		139,246		(2	)%		22	%
Infectious Disease
Virazole(P)		14,350		16,552		16,547		(13	)%		0	%
Other Infectious Disease		19,813		20,144		21,459		(2	)%		(6	)%
Total Infectious Disease		34,163		36,696		38,006		(7	)%		(3	)%
Other therapeutic classes
Bedoyecta(P)		42,384		49,935		46,762		(15	)%		7	%
Solcoseryl(P)		23,749		18,916		18,983		26	%		(0	)%
Bisocard(P)		22,559		15,927		12,847		42	%		24	%
M.V. I. (multi-vitamin infusion)(P)		11,708		13,350		7,602		(12	)%		76	%
Nyal(P)		11,060		10,216		13,747		8	%		(26	)%
Espaven(P)		8,458		11,147		9,258		(24	)%		20	%
Protamin(P)		6,924		6,384		6,047		8	%		6	%
Other products		189,969		214,386		228,483		(11	)%		(6	)%
Total other therapeutic classes		316,811		340,261		343,729		(7	)%		(1	)%
Total product sales	$	785,770	$	781,562	$	731,869		1	%		7	%
Total Promoted Product sales	$	453,082	$	427,141	$	368,085		6	%		16	%

(P) – Promoted Products with annualized sales greater than $5,000,000.

NM – Not meaningful

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Neurology

Total sales of our neurology products accounted for 34% of our product sales from continuing operations for the year ended December 31, 2007. Products in this therapeutic category include:

Diastat/Diastat AcuDial	Diastat and Diastat AcuDial are gel formulations of diazepam administered rectally in the management of selected, refractory patients with epilepsy, who require intermittent use of diazepam to control bouts of increased seizure activity. Diastat and Diastat AcuDial are the only products approved by the Food and Drug Administration (“FDA”) for treatment of such conditions outside of hospital situations. We acquired the rights to Diastat and Diastat AcuDial as part of the Xcel acquisition (see “Acquisitions”).
Mestinon	Mestinon is an orally active cholinesterase inhibitor used in the treatment of myasthenia gravis, a chronic neuromuscular, autoimmune disorder that causes varying degrees of fatigable weakness involving the voluntary muscles of the body.
Cesamet	Cesamet is a synthetic cannabinoid. It is indicated for the management of severe nausea and vomiting associated with cancer chemotherapy.
Librax	Librax is a combination within a single capsule formulation of the antianxiety action of Librium and the anticholinergic/spasmolytic effects of Quarzan. It is used as adjunctive therapy in the treatment of peptic ulcer and in the treatment of irritable bowel syndrome (irritable colon, spastic colon, mucous colitis) and acute enterocolitis.
Dalmane/Dalmadorm	Dalmane/Dalmadorm is a sedative/anxiolytic indicated for the treatment of insomnia and anxiety.
Migranal	Migranal is a nasal spray indicated for the treatment of acute migraine headaches. We acquired the rights to Migranal as part of the Xcel acquisition (see “Acquisitions”).
Tasmar	Tasmar is used in the treatment of Parkinson’s disease as an adjunct to levodopa/carbidopa therapy. We acquired the global rights to Tasmar from F. Hoffmann-La Roche in 2004.
Melleril	Melleril is used in the treatment of schizophrenia. We acquired the rights to Melleril in Brazil and Argentina from Novartis.
Zelapar	Zelapar is a once-daily adjunct therapy for Parkinson’s disease patients being treated with levodopa/carbidopa who exhibit deterioration in the quality of their response to this therapy. We acquired the U.S. rights to Zelapar in our acquisition of Amarin Pharmaceuticals in 2004 and licensed the marketing rights in certain additional countries in 2006.

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Dermatology

Total sales of our dermatology products accounted for 21% of our product sales from continuing operations for the year ended December 31, 2007. Products in this therapeutic category include:

Efudex/Efudix	Efudex/Efudix is indicated for the treatment of multiple actinic or solar keratoses and superficial basal cell carcinoma. It is sold as a topical solution and cream, and provides effective therapy for multiple lesions.
Kinerase	Kinerase is a range of science-based, over-the-counter cosmetic products that helps skin look smoother, younger and healthier. Kinerase contains the synthetic plant growth factor N6-furfuryladenine which has been shown to slow the changes that naturally occur in the cell aging process in plants. Kinerase helps to diminish the appearance of fine lines and wrinkles.
Oxsoralen-Ultra	Oxsoralen-Ultra is indicated for the treatment of severe psoriasis and mycosis fungoides and is used along with ultraviolet light radiation.
Dermatix	Dermatix is used to flatten and soften scars, to reduce scar-associated discoloration in old or new scars and to prevent abnormal scar formation.

Infectious Disease

Total sales of our infectious disease products accounted for 5% of our product sales from continuing operations for the year ended December 31, 2007. Products in this therapeutic category include Virazole.

Virazole Virazole is our brand name for ribavirin, a synthetic nucleoside with antiviral activity. It is indicated for the treatment of hospitalized infants and young children with severe lower respiratory tract infections due to respiratory syncytial virus. Virazole has also been approved for various other indications in countries outside the United States including herpes zoster, genital herpes, chickenpox, hemorrhagic fever with renal syndrome, measles and influenza.

Other therapeutic classes

Total sales of products in other therapeutic classes constituted 40% of our product sales from continuing operations for the year ended December 31, 2007 and encompass a broad range of ancillary products which are sold through our existing distribution channels. The Promoted Products in this category are as follows:

Bedoyecta	Bedoyecta is a brand of vitamin B complex (B1, B6 and B12 vitamins) products. Bedoyecta products act as energy improvement agents for fatigue related to age or chronic diseases, and as nervous system maintenance agents to treat neurotic pain and neuropathy.
Solcoseryl	Solcoseryl is a line of products used for treating dry wounds, minor injuries, venous ulcers and chilblain.
Bisocard	Bisocard is a Beta-blocker. It is indicated to treat hypertension and angina pectoris.
M.V.I.	M.V.I., multi-vitamin infusion, is a hospital dietary supplement used in treating trauma and burns.

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Nyal	Nyal is an over-the-counter line of products covering various non-steroidal anti-inflammatory agents, analgesics and antipyretics. Nyal products are used to treat coughs, colds and associated symptoms.
Espaven	Espaven is a digestion improvement and anti-flatulent agent. It is most often used by pediatricians in infant dyspepsia syndrome.
Protamin	Protamin is used to neutralize heparin.

Acquisitions

In 2007, we acquired product rights in the United States, Europe and Argentina for aggregate consideration of $40,803,000, of which $36,184,000 was cash consideration. In the United States, we acquired a paid-up license for Kinetin and Zeatin, the active ingredients in the Kinerase product line, for cash consideration of $21,000,000 and other consideration of $4,170,000. In Europe we acquired the rights to Nabilone, the product we currently market as Cesamet in Canada and the United States, for $13,582,000. We acquired the rights to certain products in Poland, Argentina and Spain for $1,602,000 in cash consideration and $449,000 in other consideration.

In 2006, we acquired rights to new product lines in Poland and the UK. In Poland we acquired the rights to a number of branded generic products for nominal cash consideration. In the UK we acquired exclusive rights to distribute certain dermatological skin care products from Intendis AG, including Finacea, Skinoren, Scheriproct, and Ultrabase. In 2006, we also acquired the rights to Zelapar in Canada and Mexico. We had acquired the rights to Zelapar in the United States as part of the Amarin acquisition in 2004 and launched the product in the United States in 2006. In 2006, we also acquired from Novartis the rights to Melleril in Argentina, having acquired the rights to this product in Brazil in 2005.

On December 30, 2005, we acquired the U.S. and Canadian rights to the hepatitis C drug Infergen from InterMune. We paid InterMune $120,000,000 in cash at the closing. Subsequently, we paid InterMune a non-contingent milestone payment of $2,585,000 in January 2007 and a $5,000,000 contingent milestone in July 2007 which we recorded as goodwill. In September 2007, we decided to divest these Infergen product rights and we sold them to Three Rivers Pharmaceuticals, LLC on January 14, 2008. The results of the Infergen operations and the related financial position have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

On March 1, 2005, we acquired Xcel Pharmaceuticals, Inc. (“Xcel”), a specialty pharmaceutical company focused on the treatment of disorders of the central nervous system, for $280,000,000 in cash, plus expenses of $5,435,000. Under the terms of the purchase agreement, we paid an additional $7,470,000 as a post-closing working capital adjustment. The Xcel acquisition expanded our existing neurology product portfolio with four products that are sold within the United States, and retigabine, a late-stage clinical product candidate that is an adjunctive treatment for partial-onset seizures in patients with epilepsy.

See Note 4 of notes to consolidated financial statements for further discussion of these acquisitions.

Research and Development

With our restructured research and development organization, we no longer conduct discovery research to identify new compounds. Instead, we focus on the development of products through clinical trials. We currently have two compounds in late-stage clinical development: retigabine and taribavirin.

Our research and development expenses for the years ended December 31, 2007, 2006 and 2005 were $98,025,000, $105,442,000 and $114,100,000. The reduction in research and development expenses in 2007 compared with 2006 is principally due to the discontinuation of our discovery operations and the sale of the pradefovir rights to Schering-Plough, partly offset by the increase in clinical development expense for retigabine.

As of December 31, 2007, there were 132 employees involved in our research and development efforts.

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Products Under Development

Late Stage Development of New Chemical Entities

Retigabine:  We are developing retigabine as an adjunctive treatment for partial-onset seizures in patients with epilepsy. Retigabine is believed to have a unique mechanism of action. Retigabine stabilizes hyper-excited neurons primarily by opening neuronal potassium channels. Retigabine has undergone several Phase II clinical trials which included more than 600 patients in several dose-ranging studies compared to placebo. The results of the key Phase II study indicate that the compound is potentially efficacious with a demonstrated reduction in monthly seizure rates of 23% to 35% as adjunctive therapy in patients with partial seizures. Response rates in the two higher doses were statistically significant compared to placebo (p<0.001).

Following a Special Protocol Assessment by the FDA, two Phase III trials of retigabine were initiated in 2005. One Phase III trial (RESTORE 1; RESTORE stands for Retigabine Efficacy and Safety Trial for partial Onset Epilepsy) was conducted at approximately 50 sites, mainly in the Americas (U.S., Central/South America); the second Phase III trial (RESTORE 2) is being conducted at approximately 70 sites, mainly in Europe. The first patient in the RESTORE 1 trial was enrolled in September 2005. We completed the enrollment of patients in RESTORE 1 and RESTORE 2 in July 2007 and November 2007, respectively.

We announced clinical data results for RESTORE 1 on February 12, 2008. RESTORE 1 evaluated the 1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo in patients taking stable doses of one to three additional anti-epileptic drugs (AEDs). Retigabine demonstrated statistically significant results on the primary efficacy endpoints important for regulatory review by both the US Food and Drug Administration (FDA) and the European Medicines Evaluation Agency (EMEA). See Item 7, Products in Development for further discussion of the RESTORE 1 data announcement.

Our rights to retigabine are subject to the Asset Purchase Agreement between Meda Pharma Gmbh & Co KG (as successor to Viatris Gmbh & Co KG) and Xcel Pharmaceuticals, Inc. by which Xcel acquired the rights to retigabine. The provisions of that agreement require milestone payments of $8,000,000 upon acceptance of filing of the NDA and $6,000,000 upon approval of the NDA. We expect to expense the NDA filing milestone in 2008. In addition, earn out payments are due to Meda on sales of retigabine. Depending on geographic market and the presence or absence of competitive products containing retigabine, royalty rates vary but are in all cases less than 10%. In the event that we enter into arrangements whereby we receive milestone or other payments from partners regarding retigabine, we may also be liable to Meda for as much as $5,250,000.

Assuming successful completion of the Phase III trials and approval by the FDA and European Medicines Evaluation Agency, we expect to launch retigabine in the first market by late 2009. We will seek a partner to ensure we maximize the market potential of the compound. External research and development expenses for retigabine were $43,650,000 and $27,391,000 in 2007 and 2006, respectively. A number of standard supportive Phase I trials necessary for successful registration of retigabine started in 2007. In March 2007 we initiated development of a modified release formulation of retigabine. In addition, in April 2007 we filed an IND for the treatment of post herpetic neuralgia, a common form of neuropathic pain. Following review, the FDA has allowed Valeant to proceed with this Phase IIa clinical trial and we began enrolling patients in November 2007.

Taribavirin:  Taribavirin (formerly referred to as Viramidine) is a nucleoside (guanosine) analog that is converted into ribavirin by adenosine deaminase in the liver and intestine. We are developing taribavirin in oral form for the treatment of hepatitis C.

Preclinical studies indicated that taribavirin, a liver-targeting analog of ribavirin, has antiviral and immunological properties similar to ribavirin. In 2006, we reported the results of two pivotal Phase III trials for taribavirin. The VISER (Viramidine Safety and Efficacy Versus Ribavirin) trials included two co-primary endpoints: one for safety (superiority to ribavirin in incidence of anemia) and one for efficacy (non-inferiority to ribavirin in sustained viral response, SVR). The results of the VISER trials met the safety endpoint but did not meet the efficacy endpoint.

The studies demonstrated that 38-40% of patients treated with taribavirin achieved SVR and that the drug has a safety advantage over ribavirin, but that it was not comparable to ribavirin in efficacy at the doses studied. We

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believe that the results of the studies were significantly impacted by the dosing methodology which employed a fixed dose of taribavirin for all patients and a variable dose of ribavirin based on a patient’s weight. Our analysis of the study results leads us to believe that the dosage of taribavirin, like ribavirin, likely needs to be based on a patient’s weight to achieve efficacy equal or superior to that of ribavirin. Additionally we think that higher doses of taribavirin than those studied in the VISER program may be necessary to achieve our efficacy objectives.

Based on our analysis, we initiated a Phase IIb study to evaluate the efficacy of taribavirin at 20, 25 and 30 mg/kg in combination with pegylated interferon. A ribavirin control arm also is included in the study. The primary efficacy parameter is the proportion of responders at treatment week 12; additional efficacy and safety assessments will occur throughout the duration of the study. Enrollment into this study was completed in October 2007.

On March 17, 2008 we reported the results of the 12-week analysis of the taribavirin Phase IIb study. The Phase IIb study is a U.S. multi-center, randomized, parallel, open-label study in 278 treatment naïve, genotype 1 patients evaluating taribavirin at 20 mg/kg, 25 mg/kg, and 30 mg/kg per day in combination with pegylated interferon alfa-2b. The control group is being administered weight-based dosed ribavirin (800/1,000/1,200/1,400 mg daily) and pegylated interferon alfa-2b. The 12-week early viral response (EVR) data from the Phase IIb study showed comparable reductions in viral load for weight-based doses of taribavirin and ribavirin. The anemia rate was statistically significantly lower for patients receiving taribavirin in the 20mg/kg and 25mg/kg arms versus the ribavirin control arm. More details on the taribavirin Phase IIb study announcement are provided in Item 7, Products in Development. We are using the data to explore the options for the continued role of taribavirin in our portfolio, including consideration of partnering opportunities.

The timeline and path to regulatory approval of taribavirin remains uncertain at this time. We are using the Phase IIb data to explore the options for the continued role of taribavirin in our portfolio, including consideration of partnering opportunities. Our external research and development expenses for taribavirin were $8,115,000 and $16,133,000 for 2007 and 2006, respectively

Other Development Activities

Diastat Intranasal:  Our product Diastat AcuDial is a gel formulation of diazepam administered rectally in the management of selected, refractory patients with epilepsy, who require intermittent use of diazepam to control bouts of increased seizure activity. In order to improve the convenience of this product, we have initiated the development of an intranasal delivery of diazepam. Our external research and development expenses for Diastat Intranasal were $1,425,000 and $70,000 for 2007 and 2006, respectively.

Licenses and Patents (Proprietary Rights)

Data and Patent Exclusivity

We rely on a combination of regulatory and patent rights to protect the value of our investment in the development of our products.

A patent is the grant of a property right which allows its holder to exclude others from, among other things, selling the subject invention in, or importing such invention into, the jurisdiction that granted the patent. In both the United States and the European Union, patents expire 20 years from the date of application.

In the United States, for five years from the date of the first United States regulatory FDA approval of a new drug compound, only the pioneer drug company can use the data obtained at the pioneer’s expense. No generic drug company may submit an application for approval of a generic drug relying on the data used by the pioneer for approval during this five-year period.

A similar data exclusivity scheme exists in the European Union, whereby only the pioneer drug company can use data obtained at the pioneer’s expense for up to eight years from the date of the first approval of a drug by the European Agency for the Evaluation of Medicinal Products (“EMEA”) and no generic drug can be marketed for ten years from the approval of the innovator product. Under both the United States and the European Union data exclusivity programs, products without patent protection can be marketed by others so long as they repeat the clinical trials necessary to show safety and efficacy.

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Exclusivity Rights with Respect to Retigabine and Taribavirin

We own a United States composition of matter patent (which will expire in 2013) directed to retigabine without regard to crystalline form; we anticipate that this patent will be extended to 2018 upon approval of retigabine pursuant to the Hatch-Waxman Act. We also own two United States patents (both of which will expire in 2018) that are directed to specific crystalline forms of retigabine. In addition, we own a number of United States patents and pending applications, with expiration dates ranging from 2016 to 2023, directed to the use of retigabine to treat a variety of disease indications. We also own several patents and pending applications in foreign countries with expiration dates ranging from 2012 to 2024.

We own a United States patent (which will expire in 2018) directed to a method of treating a viral infection using a genus of compounds that includes taribavirin. We also own a United States patent (which will expire in 2020) that specifically claims the use of taribavirin to treat hepatitis C infection. If taribavirin receives regulatory approval, these patents may be eligible for patent term extensions. To the extent permitted in foreign jurisdictions, we are pursuing the foreign patent rights that correspond to our United States patents.

Upon regulatory approval, we expect to obtain five years of data exclusivity in the United States and eight years in Europe for retigabine and taribavirin. We have various issued patents or pending applications in foreign countries. These patents or patent applications, if issued, have expiration dates ranging from 2012 to 2023.

Exclusivity with Respect to Ribavirin

Royalty payments from Schering-Plough do not depend on the existence of a patent. We expect ribavirin royalties to continue to decline in 2008 as a result of market competition between Roche and Schering-Plough. The royalty will decline significantly in 2009 in that royalty payments from Schering-Plough will continue for European sales only until the ten-year anniversary of the launch of the product, which varied by European country and started in May 1999. Royalties from Schering-Plough in Japan will continue after 2009.

Generic ribavirin was launched in the United States in the first half of 2004. Under our agreement with Roche, upon the entry of generics into the United States, Roche ceased paying royalties on sales in the United States. Roche discontinued paying royalties to us for ribavirin sales in Europe in June 2007 when the Opposition Division of the European Patent Office revoked a patent covering ribavirin. In the past few years, royalties from Roche represented approximately 10% of our ribavirin royalties.

Government Regulations

We are subject to licensing and other regulatory control by the FDA, other federal and state agencies, the EMEA and other comparable foreign governmental agencies.

FDA approval must be obtained in the United States, EMEA approval must be obtained for countries that are part of the European Union and approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products for use by humans.

Obtaining FDA approval for new products and manufacturing processes can take a number of years and involve the expenditure of substantial resources. To obtain FDA approval for the commercial sale of a therapeutic agent, the potential product must undergo testing programs on animals, the data from which is used to file an IND with the FDA. In addition, there are three phases of human testing: Phase I consists of safety tests for human clinical experiments, generally in normal, healthy people; Phase II programs expand safety tests and are conducted in people who are sick with the particular disease condition that the drug is designed to treat; and Phase III programs are greatly expanded clinical trials to determine the effectiveness of the drug at a particular dosage level in the affected patient population. The data from these tests is combined with data regarding chemistry, manufacturing and animal toxicology and is then submitted in the form of a New Drug Application or NDA to the FDA. The preparation of an NDA requires the expenditure of substantial funds and the commitment of substantial resources. The review by the FDA can take up to several years. If the FDA determines that the drug is safe and effective, the NDA is approved. A similar process exists in the European Union and in other countries. See Item 1A — Risk Factors for risks associated with government regulation of our business.

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Manufacturers of drug products are required to comply with manufacturing regulations, including current good manufacturing regulations enforced by the FDA and similar regulations enforced by regulatory agencies outside the United States. In addition, we are subject to price control restrictions on our pharmaceutical products in many countries in which we operate.

Environmental Regulation

We are subject to national, state, and local environmental laws and regulations, including those governing the handling and disposal of hazardous wastes, wastewater, solid waste and other environmental matters. Our development and manufacturing activities involve the controlled use of hazardous materials.

Marketing and Customers

Our five major geographic markets are: the United States, Mexico, Poland, Canada, and Germany. During the year ended December 31, 2007, we derived approximately 68% of our sales from these markets. We currently promote our pharmaceutical products to physicians, hospitals, pharmacies and wholesalers through our own sales force and sell through wholesalers. In some limited markets, we additionally sell directly to physicians, hospitals and large drug store chains and we sell through distributors in countries where we do not have our own sales staff. As part of our marketing program for pharmaceuticals, we use direct mailings, advertise in trade and medical periodicals, exhibit products at medical conventions and sponsor medical education symposia.

Competition

Our competitors include specialty and large pharmaceutical companies, biotechnology companies, OTC companies, academic and other research and development institutions and generic manufacturers, both in the United States and abroad. In addition, our cosmeceutical Kinerase products also face competition from manufacturers of non-prescription cosmetic products. Our competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting in neurology, infectious disease and dermatology.

Products being developed by our competitors to treat epilepsy include, but are not limited to:

•  Eisai’s rufinamide, which has been submitted to the FDA for review for the treatment of partial onset epilepsy and Lennox-Gastaut Syndrome (LGS), having received European approval for the treatment of LGS in January 2007, and

•  UCB’s lacosamide (previously Schwarz) filed for approval with the EMEA and FDA in 2007. Extended release versions of approved anti-epileptic drugs (AEDs) have been filed and currently under review include include Lamictal aXR by GSK and Keppra XR by UCB.

•  AEDs in Phase III development for the treatment of epilepsy include carisbamate by Ortho-McNeil, Inc. and brivaracetam by UCB. There are many AEDs in Phase II development for the treatment of epilepsy.

Products being developed by our competitors to treat hepatitis C include, but are not limited to:

•  Interferons or immunomodulators being developed by Novartis/Human Genome Sciences, Inc., Intarcia Therapeutics, Inc., Anadys, and SciClone Pharmaceuticals, Inc.;

•  IMPDH inhibitors being developed by Roche and Vertex Pharmaceuticals Incorporated; and

•  Protease or polymerase inhibitors being developed by InterMune, Vertex Pharmaceuticals Incorporated/Johnson & Johnson, Schering-Plough, Novartis A.G., Wyeth/Viropharma Inc. and Idenix Pharmaceuticals, Inc.

The success of any of our competitors’ products or products in development could hurt our expected revenues for retigabine and taribavirin, if approved.

We sell a broad range of products, and competitive factors vary by product line and geographic area in which the products are sold.

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We also face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of our currently marketed products expire or are successfully challenged. We currently have two significant products, Efudex and Cesamet, which do not currently have generic competition but neither of which are protected by patent or regulatory exclusivity. Sales of Efudex and Cesamet in the aggregate were $101,887,000 and $97,321,000 in 2007 and in 2006, respectively.

On October 12, 2007, we settled a patent infringement lawsuit with Kali Laboratories, Inc. regarding Kali’s submission of an Abbreviated New Drug Application (“ANDA”) with the FDA seeking approval for a generic version of Diastat (a diazepam rectal gel). Under the terms of this settlement, we agreed that Valeant would allow Kali to introduce a generic version of Diastat and Diastat AcuDial on or after September 1, 2010, or earlier under certain circumstances.

Manufacturing

We currently operate four manufacturing plants. We had reduced the number of manufacturing sites in our global manufacturing and supply chain network from 15 sites in 2003 to six sites by the end of 2006 and subsequently in June 2007, we sold our former manufacturing facilities in Basel, Switzerland and Puerto Rico to Legacy Pharmaceuticals International, reducing the number of sites in our network to four.

All of our manufacturing facilities that require certification from the FDA or foreign agencies have obtained such approval.

We also subcontract the manufacturing of certain of our products, including products manufactured under the rights acquired from other pharmaceutical companies. Generally, acquired products continue to be produced for a specific period of time by the selling company. During that time, we integrate the products into our own manufacturing facilities or initiate toll manufacturing agreements with third parties.

In 2008, we estimate that approximately 47% of our products and approximately 67% of our product sales will be produced by third party manufacturers under toll manufacturing arrangements.

The principal raw materials used by us for our various products are purchased in the open market. Most of these materials are available from several sources. We have not experienced any significant shortages in supplies of such raw materials.

Employees

As of December 31, 2007, we had 3,001 employees. These employees include 795 in production, 1,652 in sales and marketing, 132 in research and development, and 422 in general and administrative positions. Collective bargaining exists for some employees in a number of markets. Substantially all the employees in Europe are covered by national labor laws which establish the rights of employees, including the amount of wages and benefits paid and, in certain cases, severance and similar benefits. We currently consider our relations with our employees to be good and have not experienced any work stoppages, slowdowns or other serious labor problems that have materially impeded our business operations.

Product Liability Insurance

We have had product liability insurance to cover damages resulting from the use of our products since March 2005. Prior to 2005, we obtained product liability insurance coverage only for certain products. We have in place clinical trial insurance in the major markets where we conduct clinical trials.

Foreign Operations

Approximately 74%, 74% and 75% of our revenues from continuing operations, which includes royalties, for the years ended December 31, 2007, 2006 and 2005, respectively, were generated from operations or otherwise earned outside the United States. All of our foreign operations are subject to risks inherent in conducting business abroad, including price and currency exchange controls, fluctuations in the relative values of currencies, political

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instability and restrictive governmental actions including possible nationalization or expropriation. Changes in the relative values of currencies may materially affect our results of operations.

Item 1A:   Risk Factors

You should consider carefully the following risk factors, together with all of the other information included or incorporated in this annual report on Form 10-K. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

The results from our first Phase III study for retigabine may not be predictive of results from our second Phase III study for retigabine.

The Phase III clinical program for retigabine consists of two studies, RESTORE 1 and RESTORE 2. We reported in February 2008 that RESTORE 1 had met its clinical efficacy endpoints for both US FDA and EU CHMP (see Part II, Item 7, Products in Development). RESTORE 2 results are not expected to be available until the second quarter of 2008 and the results of RESTORE 1 may not be predictive of the results of RESTORE 2. Thus we give no assurance that RESTORE 2 will meet either of its clinical efficacy endpoints.

The results from the initial 12 weeks of our Phase IIb study for taribavirin may not be predictive of the final results of the Phase IIb study or of any subsequent clinical trial necessary for approval of taribavirin.

On March 17, 2008 we reported the results of the 12-week analysis of the taribavirin Phase IIb study (see Part II, Item 7, Products in Development). These results may not be predictive of the final results of the full 72-week study or of any subsequent clinical trial necessary for the approval of taribavirin. Thus we give no assurance that taribavirin will ultimately meet its clinical efficacy or safety endpoints, that we will conduct additional trials necessary for approval or that, if we conduct such additional trials, the results will lead to approval of taribavirin by the FDA or similar authority or any foreign government.

If our products cause, or are alleged to cause, serious or widespread personal injury, we may have to withdraw those products from the market and/or incur significant costs, including payment of substantial sums in damages.

Even in well designed clinical trials, the potential of a drug to cause serious or widespread personal injury may not be apparent. In addition, the existence of a correlation between use of a drug and serious or widespread personal injury may not be apparent until it has been in widespread use for some period of time. Particularly when a drug is used to treat a disease or condition which is complex and the patients are taking multiple medications, such correlations may indicate, but do not necessarily indicate, that the drug has caused the injury; nevertheless we may decide to, or regulatory authorities may require that we, withdraw the drug from the market and/or we may incur significant costs, including the potential of paying substantial damages. Withdrawals of products from the market and/or incurring significant costs, including the requirement to pay substantial damages in personal injury cases, would materially affect our business and results of operation.

If we, our partners or licensees cannot successfully develop or obtain future products and commercialize those products, our growth would be delayed.

Our future growth will depend, in large part, upon our ability or the ability of our partners or licensees to develop or obtain and commercialize new products and new formulations of, or indications for, current products. We are engaged in an active development program involving compounds which we may commercially develop in the future. We are in clinical trials for retigabine and taribavirin. Partners or licensees may also help us develop these and other product candidates in the future and are responsible for developing other product candidates that have been licensed to or acquired by them. The process of successfully commercializing products is time consuming, expensive and unpredictable. There can be no assurance that we, our partners or our licensees will be able to develop

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or acquire new products, successfully complete clinical trials, obtain regulatory approvals to use these products for proposed or new clinical indications, manufacture the potential products in compliance with regulatory requirements or in commercial volumes, or gain market acceptance for such products. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. It may be necessary for us to enter into other licensing arrangements with other pharmaceutical companies in order to market effectively any new products or new indications for existing products. There can be no assurance that we will be successful in entering into such licensing arrangements on terms favorable to us or at all.

There can be no assurance that the clinical trials of any of our product candidates, including retigabine and taribavirin, will be successful, that the product candidates will be granted approval to be marketed for any of the indications being sought or that any of the product candidates will result in a commercially successful product.

We have identified a material weakness in our internal control over financial reporting that could adversely affect our stock price and ability to prepare complete and accurate financial statements in a timely manner.

We have identified a material weakness in our internal control over financial reporting as of December 31, 2007. The material weakness, which arose primarily as a result of our lack of a sufficient complement of personnel in our foreign locations and monitoring controls at the corporate level, is further described in Item 9A of this annual report on Form 10-K. Because of the foregoing, we concluded that certain financial statements, earnings press releases and similar communications should no longer be relied upon and that certain of our financial statements would need to be restated. We also concluded that our disclosure controls and procedures were not effective as of December 31, 2007.

We are taking steps to remediate this material weakness and to improve our disclosure controls and procedures. We may, however, identify additional or future material weaknesses or deficiencies. If we fail to remediate the identified or any future material weakness or deficiency, or to maintain our disclosure controls and procedures at the reasonable assurance level, our financial statements and related disclosure could contain material misstatements, the preparation and filing of our financial statements and related filings could be delayed, and substantial costs and resources may be required to remediate any weaknesses or deficiencies or to improve our disclosure controls and procedures. If we cannot produce reliable and timely financial statements, investors could lose confidence in our reported financial information, the market price of our stock could decline significantly, we may be unable to comply with certain covenants in our debt agreements or obtain additional financing on acceptable terms, and our business and financial condition could be harmed.

The current SEC investigation could adversely affect our business and the trading price of our securities.

The SEC is conducting an investigation regarding events and circumstances surrounding trading in our common stock and the public release of data from our first pivotal Phase III trial for taribavirin. In addition, the SEC requested data regarding our stock option grants since January 1, 2000 and information about our pursuit in the Delaware Chancery Court of the return of certain bonuses paid to Milan Panic, a former chairman and chief executive officer, and others. In September 2006, our board of directors established the Special Committee to review our historical stock option practices and related accounting. The Special Committee concluded its investigation in January 2007. We have briefed the SEC with the results of the Special Committee’s investigation. We have cooperated fully and will continue to cooperate with the SEC on its investigation. We cannot predict the outcome of the investigation. In the event that the investigation leads to SEC action against any current or former officer or director, our business (including our ability to complete financing transactions) and the trading price of our securities may be adversely impacted. In addition, if the SEC investigation continues for a prolonged period of time, it may have an adverse impact on our business or the trading price of our securities regardless of the ultimate outcome of the investigation. In addition, the SEC inquiry has resulted in the incurrence of significant legal expenses and the diversion of management’s attention from our business, and this may continue, or increase, until the investigation is concluded.

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Third parties may be able to sell generic forms of our products or block the sales of our products if our intellectual property rights or data exclusivity rights do not sufficiently protect us; patent rights of third parties may also be asserted against us.

Our success depends in part on our ability to obtain and maintain meaningful exclusivity protection for our products and product candidates in key markets throughout the world via patent protection and/or data exclusivity protection. The patent positions of pharmaceutical, biopharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. We will be able to protect our products from generic substitution by third parties only to the extent that our technologies are covered by valid and enforceable patents, effectively maintained as trade secrets or protected by data exclusivity. However, our currently pending or future patent applications may not issue as patents. Any patent issued may be challenged, invalidated, held unenforceable or circumvented. Furthermore, our patents may not be sufficiently broad to prevent third parties from producing generic substitutes for our products. Lastly, data exclusivity schemes vary from country to country and may be limited or eliminated as governments seek to reduce pharmaceutical costs by increasing the speed and ease of approval of generic products.

In order to protect or enforce patent and/or data exclusivity rights, we may initiate patent litigation against third parties, and we may be similarly sued by others. We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property and data exclusivity actions are costly and divert technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceeding, resulting in a finding of non-infringement or invalidity of our patents, or a lack of protection via data exclusivity, may allow the entry of generic substitutes for our products.

Furthermore, because of the substantial amount of discovery required in connection with such litigation, there is a risk that some of our confidential information could be compromised by disclosure during such litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our securities.

The existence of a patent will not necessarily protect us from competition. Competitors may successfully challenge our patents, produce similar drugs that do not infringe our patents or produce drugs in countries that do not respect our patents. No patent can protect its holder from a claim of infringement of another patent. Therefore, our patent position cannot and does not provide an assurance that the manufacture, sale or use of products patented by us would not infringe a patent right of another.

While we know of no actual or threatened claim of infringement that would be material to us, there can be no assurance that such a claim will not be asserted. If such a claim is asserted, there can be no assurance that the resolution of the claim would permit us to continue producing the relevant product on commercially reasonable terms.

Products representing a significant amount of our revenue are not protected by patent or data exclusivity rights.

Some of the products we sell have no meaningful exclusivity protection via patent or data exclusivity rights. These products represent a significant amount of our revenues. Without exclusivity protection, competitors face fewer barriers in introducing competing products. The introduction of competing products could adversely affect our results of operations and financial condition.

If retigabine and taribavirin do not become approved and commercially successful products, our ability to generate future growth in revenue and earnings will be adversely affected.

We focus our development activities on areas in which we have particular strengths, such as the antiviral and neurology areas. The outcome of any development program is highly uncertain. Products in clinical trials may fail to yield a commercial product, or a product may be approved by the FDA yet not be a commercial success. Success in preclinical and early stage clinical trials may not necessarily translate into success in large-scale clinical trials.

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In addition, we will need to obtain and maintain regulatory approval in order to market retigabine and taribavirin. Even if they appear promising in large-scale Phase III clinical trials, regulatory approval may not be achieved. The results of clinical trials are susceptible to varying interpretations that may delay, limit or prevent approval or result in the need for post-marketing studies. In addition, changes in regulatory policy for product approval during the period of product development and FDA review of a new application may cause delays or rejection. Even if we receive regulatory approval, this approval may include limitations on the indications for which we can market a product, thereby reducing the size of the market that we would be able to address or our product may not be chosen by physicians for use by their patients. There is no guarantee that we will be able to satisfy the needed regulatory requirements, and we may not be able to generate significant revenue, if any, from retigabine and taribavirin.

We are subject to uncertainty related to health care reform measures and reimbursement policies.

The levels at which government authorities, private health insurers, HMOs and other organizations reimburse the cost of drugs and treatments related to those drugs will impact the successful commercialization of our drugs. We cannot be sure that reimbursement in the United States or elsewhere will be available for any drugs we may develop or, if already available, will not be decreased in the future. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our drugs. If reimbursement is not available or is available only on a limited basis, we may not be able to obtain a satisfactory financial return on the manufacture and commercialization of existing and future drugs. Third-party payors may not establish and maintain price levels sufficient for us to realize an appropriate return on our investment in product development or our continued manufacture and sale of existing drug products.

We are subject to price control restrictions on our pharmaceutical products in the majority of countries in which we operate.

Jurisdictions outside of the United States may enact price control restrictions or increase the price control restrictions that currently exist. A significant portion of the sales of our products are in Europe, a market in which price increases are controlled, and in some instances, reductions are imposed. Our future sales and gross profit could be materially adversely affected if we are unable to obtain appropriate price increases, or if our products are subject to price reductions.

The matters relating to the Special Committee’s review of our historical stock option granting practices and the restatement of our consolidated financial statements have resulted in increased litigation and regulatory proceedings against us and could have a material adverse effect on us.

In September 2006, our board of directors appointed a Special Committee, which consisted solely of independent directors, to conduct a review of our historical stock option granting practices and related accounting during the period from 1982 through July 2006. The Special Committee identified a number of occasions on which the exercise prices for stock options granted to certain of our directors, officers and employees were set using closing prices of our common stock with dates different than the actual approval dates, resulting in additional compensation charges. To correct these and other accounting errors, we amended our annual report on Form 10-K for the year ended December 31, 2005 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006 to restate the consolidated financial statements contained in those reports.

Our historical stock option granting practices and the restatement of our prior financial statements have exposed us to greater risks associated with litigation and regulatory proceedings. We are a nominal defendant in two shareholder derivative lawsuits pending in the state court in Orange County, California, which assert claims related to our historic stock option practices. In addition, the SEC has opened a formal inquiry into our historical stock option grant practices. We cannot assure you that this current litigation, the SEC inquiry or any future litigation or regulatory action will result in the same conclusions reached by the Special Committee. The conduct and resolution of these matters will be time consuming, expensive and distracting from the conduct of our business. Furthermore, if we are subject to adverse findings in any of these matters, we could be required to pay damages or penalties or have other remedies imposed upon us which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

19

If competitors develop vaccines or more effective or less costly drugs for our target indications, our business could be seriously harmed.

Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. Many of our competitors spend significantly more on research and development related activities than we do. Others may succeed in developing products that are more effective than those currently marketed or proposed for development by us. Progress by other researchers in areas similar to those being explored by us may result in further competitive challenges. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products. They may also establish exclusive collaborative or licensing relationships with our competitors.

Obtaining necessary government approvals is time consuming and not assured.

FDA approval must be obtained in the United States and approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products for use by humans. Obtaining FDA approval for new products and manufacturing processes can take a number of years and involves the expenditure of substantial resources. Numerous requirements must be satisfied, including preliminary testing programs on animals and subsequent clinical testing programs on humans, to establish product safety and efficacy. No assurance can be given that we will obtain approval in the United States, or any other country, of any application we may submit for the commercial sale of a new or existing drug or compound. Nor can any assurance be given that if such approval is secured, the approved labeling will not have significant labeling limitations, or that those drugs or compounds will be commercially successful.

Furthermore, changes in existing regulations or adoption of new regulations could prevent or delay us from obtaining future regulatory approvals or jeopardize existing approvals, which could significantly increase our costs associated with obtaining approvals and negatively impact our market position.

If we or our third-party manufacturers are unable to manufacture our products or the manufacturing process is interrupted due to failure to comply with regulations or for other reasons, the manufacture of our products could be interrupted.

We manufacture and have contracted with third parties to manufacture some of our drug products, including products under the rights acquired from other pharmaceutical companies. Manufacturers are required to adhere to current good manufacturing (“cGMP”) regulations enforced by the FDA or similar regulations required by regulatory agencies in other countries. Compliance with the FDA’s cGMP requirements applies to both drug products seeking regulatory approval and to approved drug products. Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance with cGMP standards before approval for marketing.

Our dependence upon others to manufacture our products may adversely affect our profit margins and our ability to develop and obtain approval for our products on a timely and competitive basis, if at all. Our failure or that of our contract manufacturers to comply with cGMP regulations or similar regulations outside of the United States can result in enforcement action by the FDA or its foreign counterparts, including, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution. In addition, delays or difficulties with our contract manufacturers in producing, packaging, or distributing our products could adversely affect the sales of our current products or introduction of other products.

In addition to regulatory compliance risks, our contract manufacturers in the United States and in other countries are subject to a wide range of business risks, such as seizure of assets by governmental authorities, natural disasters, and domestic and international economic conditions. Were any of our contract manufacturers not able to manufacture our products because of regulatory, business or any other reasons, the manufacture of our products would be interrupted. This could have a negative impact on our sales, financial condition and competitive position.

20

Many of our key processes, opportunities and expenses are a function of existing national and/or local government regulation. Significant changes in regulations could have a material adverse impact on our business.

The process by which pharmaceutical products are approved is lengthy and highly regulated. Our multi-year clinical trials programs are planned and executed to conform to these regulations, and once begun, can be difficult and expensive to change should the regulations regarding approval of pharmaceutical products significantly change.

In addition, we depend on patent law and data exclusivity to keep generic products from reaching the market in our evaluations of the development of our products. In assessing whether we will invest in any development program, or license a product from a third party, we assess the likelihood of patent and/or data exclusivity under the laws and regulations then in effect. If those schemes significantly change in a large market, or across many smaller markets, our ability to protect our investment may be adversely affected.

Appropriate tax planning requires that we consider the current and prevailing national and local tax laws and regulations, as well as international tax treaties and arrangements that we enter into with various government authorities. Changes in national/local tax regulations or changes in political situations may limit or eliminate the effects of our tax planning and could result in unanticipated tax expenses.

Our business, financial condition and results of operations are subject to risks arising from the international scope of our operations.

We conduct a significant portion of our business outside the United States. Including ribavirin royalties, approximately 74% of our revenues from continuing operations were generated outside the United States during the years ended December 31, 2007 and 2006. We sell our pharmaceutical products in more than 100 countries around the world and employ approximately 2,400 individuals in countries other than the United States. The international scope of our operations may lead to volatile financial results and difficulties in managing our operations because of, but not limited to, the following:

•  difficulties and costs of staffing, severance and benefit payments and managing international operations;

•  exchange controls, currency restrictions and exchange rate fluctuations;

•  unexpected changes in regulatory requirements;

•  the burden of complying with multiple and potentially conflicting laws;

•  the geographic, time zone, language and cultural differences between personnel in different areas of the world;

•  market share and product sales in certain markets being dependent on actions by and relationships with key distributors;

•  greater difficulty in collecting accounts receivables in and moving cash out of certain geographic regions;

•  the need for a significant amount of available cash from operations to fund our business in a number of geographic and economically diverse locations; and

•  political, social and economic instability in emerging markets in which we currently operate.

In addition, we have identified a material weakness in internal control over financial reporting as of December 31, 2007 related to not maintaining a sufficient complement of personnel in our foreign locations with the appropriate skills, training and experience to identify and address the application of U.S. generally accepted accounting principles. Further, the monitoring controls over accounting for pension plans and product returns in foreign locations did not operate at a sufficient level of precision to identify the accounting errors in the foreign operations on a timely basis and did not include a process for obtaining corroborating information to support the analysis and conclusions regarding individually significant transactions. The existence of a material weakness or deficiency in internal control over financial reporting could have a material adverse affect on us. See the risk factor above captioned “We have identified a material weakness in our internal control over financial reporting that could adversely affect our stock price and ability to prepare financial statements in a timely manner.”

21

Cash earned by our foreign subsidiaries is held at those subsidiaries and transferring that cash to the United States would likely have a negative impact on our earnings.

A substantial portion of our cash balances and reserves result from the operations of, and are held by, our subsidiaries outside of the United States. The income in these countries has been taxed in the various countries where it was earned, but it has not been subject to tax in the United States. Income tax expense has been calculated on the basis that foreign earnings will be indefinitely invested in non-U.S. assets.

If we find it necessary to utilize the cash reserves of our foreign subsidiaries to finance our research and development and other activities in the United States, our income generated in foreign countries will become subject to taxation in the United States. Given the net operating loss carryforwards that we have available to offset income in the United States, it is unlikely in the near term that we would incur significant cash obligations to pay tax on repatriated foreign earnings. However, repatriating our cash resources from foreign jurisdictions would likely increase income tax expense in our financial statements which would significantly reduce our earnings. It would also use our net operating loss carryforwards, which would increase future cash obligations to pay taxes on U.S. income.

Much of our operating cash flow is earned outside of the United States.

We are involved in various legal proceedings that could adversely affect us.

We are involved in several legal proceedings, including those described in Note 16 of notes to the consolidated financial statements. Defending against claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on us.

Existing and future audits by, or other disputes with, taxing authorities may not be resolved in our favor.

Our income tax returns are subject to audit in various jurisdictions. Existing and future audits by, or other disputes with, tax authorities may not be resolved in our favor and could have an adverse effect on our reported effective tax rate and after-tax cash flows.

Difficulties in completing, financing and integrating acquisitions could have a material adverse impact on our future growth.

We intend to pursue a strategy of targeted expansion through the acquisition of compatible businesses and product lines and the formation of strategic alliances, joint ventures and other business combinations. There can be no assurance that we will successfully complete or finance any future acquisition or investment or that any acquisitions that we do complete will be completed at prices or on terms that prove to be advantageous to us. Failure in integrating the operations of companies that we have acquired or may acquire in the future may have a material adverse impact on our operating results, financial condition and future growth.

Due to the large portion of our business conducted outside the United States, we have significant foreign currency risk.

We sell products in many countries that are susceptible to significant foreign currency risk. In some of these markets we sell products for U.S. Dollars. While this eliminates our direct currency risk in such markets, it increases our risk that we could lose market share to competitors because if a local currency is devalued significantly, it becomes more expensive for customers in that market to purchase our products in U.S. Dollars.

Our stockholder rights plan and anti-takeover provisions of our charter documents could provide our board of directors with the ability to delay or prevent a change in control of us.

Our stockholder rights plan, provisions of our certificate of incorporation, bylaws and the Delaware General Corporation Law provide our board of directors with the ability to deter hostile takeovers or delay, deter or prevent a change in control of the company, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

22

We are authorized to issue, without stockholder approval, approximately 10,000,000 shares of preferred stock, 200,000,000 shares of common stock and securities convertible into either shares of common stock or preferred stock. The board of directors can also use issuances of preferred or common stock to deter a hostile takeover or change in control of the Company.

We are subject to a consent order with the Securities and Exchange Commission.

We are subject to a consent order with the SEC, which permanently enjoins us from violating securities laws and regulations. The consent order also precludes protection for forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to forward-looking statements we made prior to November 28, 2005. The existence of the permanent injunction under the consent order, and the lack of protection under the safe harbor with respect to forward-looking statements we made prior to November 28, 2005 may limit our ability to defend against future allegations.

We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business.

Pharmaceutical and biotechnology companies have faced lawsuits and investigations pertaining to violations of health care “fraud and abuse” laws, such as the federal false claims act, the federal anti-kickback statute, and other state and federal laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

If we do not realize the expected benefits from our restructuring plans, our business prospects may suffer and our operating results and financial condition would be adversely affected.

Our prior restructuring plan was, and the restructuring plan expected from our 2008 Strategic Review will be, intended to improve operational efficiencies and our competitiveness. If we are unable to realize the benefits from our restructuring plans, our business prospects may suffer and our operating results and financial condition would be adversely affected.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Our major facilities are in the following locations:

		Owned or		Square
Location	Purpose	Leased		Footage
North America
Aliso Viejo, California	Corporate headquarters		Leased		109,948
Montreal, Canada	Offices and manufacturing facility		Owned		94,119
Latin America
Mexico City, Mexico	Offices and manufacturing facility		Owned		286,411
Europe
Rzeszow, Poland	Offices and manufacturing facility		Owned		446,661

In our opinion, facilities occupied by us are more than adequate for present requirements, and our current equipment is considered to be in good condition and suitable for the operations involved.

Item 3.   Legal Proceedings

See Note 16 of notes to consolidated financial statements.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock is traded on the New York Stock Exchange (symbol: VRX). As of March 10, 2008 there were 4,681 holders of record of our common stock.

The following table sets forth, for the periods indicated the high and low sales prices of our common stock on the New York Stock Exchange — Composite Transactions reporting system.

	2007				2006
Fiscal Quarters	High		Low		High		Low
First	$	18.06	$	16.65	$	19.77	$	15.85
Second	$	18.69	$	15.44	$	18.20	$	16.06
Third	$	17.61	$	15.48	$	20.46	$	15.81
Fourth	$	15.79	$	10.65	$	20.34	$	16.32

Performance Graph

The following graph compares the cumulative total return on our common stock with the cumulative return on the Standard and Poor’s Mid Cap 400 Index (“S&P Mid Cap 400 Index”) and a 10-Stock Custom Composite Index (the “Custom Composite Index”) for the five years ended December 31, 2007. The Custom Composite consists of Allergan, Inc., Biovail Corporation, Cephalon, Inc., Forest Laboratories, Inc., Gilead Sciences, Inc., King Pharmaceuticals, Inc., Medicis Pharmaceutical Corporation, Mylan Laboratories Inc., Shire Pharmaceuticals Group plc and Watson Pharmaceuticals, Inc.

Based on reinvestment of $100 beginning on December 31, 2002

	Dec-02		Dec-03		Dec-04		Dec-05		Dec-06		Dec-07
Valeant Pharmaceuticals International		100		236		251		175		169		117
S&P Mid Cap 400 Index		100		134		154		172		187		200
Custom Composite Index		100		133		122		149		172		150

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In June 2007, our board of directors authorized a stock repurchase program. This program authorized us to repurchase up to $200,000,000 of our outstanding common stock in a 24-month period. Under the program, purchases may be made from time to time on the open market, in privately negotiated transactions, and in amounts as we see appropriate. The number of shares to be purchased and the timing of such purchases are subject to various factors, which may include the price of our common stock, general market conditions, corporate requirements, including restrictions in our debt covenants, and alternate investment opportunities. The share repurchase program may be modified or discontinued at any time. The total number of shares repurchased pursuant to this program was 6,490,690 as of December 31, 2007. We have used $99,557,000 to repurchase these shares. We have not repurchased any shares between January 1, 2008 and March 17, 2008.

We did not purchase any shares of common stock during the year ended December 31, 2007 other than purchases under the stock repurchase program. Set forth below is the information regarding shares repurchased under the stock repurchase program during the year ended December 31, 2007:

							Approximate
							Dollar Value
	Total Number		Average				of Shares that
	of Shares		Price Paid		Aggregate		May Yet Be
Period	Purchased		Per Share		Consideration		Purchased
					(In thousands)		(In thousands)
6/1/07 — 6/30/07		1,600,000	$	17.17	$	27,507	$	172,493
7/1/07 — 7/31/07		2,100,000	$	16.95	$	63,137	$	136,863
8/1/07 — 8/31/07		1,022,600	$	16.08	$	79,599	$	120,401
9/1/07 — 10/31/07		0		NM	$	79,599	$	120,401
11/1/07 — 11/30/07		1,598,090	$	11.24	$	97,590	$	102,410
12/1/07 — 12/31/07		170,000	$	11.55	$	99,557	$	100,443
Total Share Repurchases		6,490,690	$	15.32	$	99,557	$	100,443

NM — Not meaningful.

Dividend Policy

We did not declare and did not pay dividends in 2007. We declared and paid cash dividends of $.0775 for the first and second quarters of 2006. We also paid cash dividends of $.0775 per share in the first quarter of 2006 for the dividend declared in the fourth quarter of 2005. Our board of directors will continue to review our dividend policy. There are significant contractual limitations on our ability to pay future dividends under the terms of the indenture governing our 7% senior notes due 2011.

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Item 6.   Selected Financial Data

The following selected financial data are derived from our financial statements. The consolidated statement of operations data for the years ended December 31, 2007, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2007 and 2006 have been derived from our audited financial statements included elsewhere in this annual report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2006 are derived from the audited restated consolidated financial statements, including the notes thereto, appearing elsewhere in this report. The data as of December 31, 2005, 2004, and 2003 and for the years ended December 31, 2004 and 2003 has been derived from unaudited restated financial statements which are not included in this Form 10-K.

As described in Note 2 to the audited financial statements referred to above, our consolidated financial statements have been restated to correct certain accounting errors. These errors resulted in benefits (charges) to net income of ($1,003,000), ($549,000), $747,000, and 183,000 for the years ended December 31, 2006, 2005, 2004, and 2003, respectively. Additionally, the cumulative effect of the related charges to net income for periods prior to 2003 was ($2,723,000).

	Year ended December 31,
	2007			2006			2005			2004			2003
				(Restated)			(Restated)			(Restated)			(Restated)
	(In thousands except per share data)
Revenues:
Product sales	$	785,770		$	781,562		$	731,869		$	609,212		$	518,477
Alliance revenue (including ribavirin royalties)(1)		86,452			81,242			91,646			76,427			167,482
Total revenues		872,222			862,804			823,515			685,639			685,959
Costs and expenses:
Cost of goods sold (excluding amortization)		233,094			238,141			222,358			200,543			184,704
Selling expenses		259,324			244,757			232,316			196,642			166,740
General and administrative expenses		111,721			114,583			108,508			99,662			111,244
Research and development costs		98,025			105,442			114,100			92,858			45,344
Acquired in-process research and development(2)		—			—			126,399			11,770			117,609
Gain on litigation settlements(3)		—			(51,550	)		—			—			—
Restructuring charges and asset impairment(4)		23,176			138,181			1,253			19,344			—
Amortization expense		71,567			65,276			68,832			59,303			38,577
Total costs and expenses		796,907			854,830			873,766			680,122			664,218
Income (loss) from operations		75,315			7,974			(50,251	)		5,517			21,741
Other income (loss), net including translation and exchange		1,060			1,152			(6,358	)		141			4,727
Loss on early extinguishment of debt(5)		—			—			—			(19,892	)		(12,803	)
Interest income		17,792			12,610			13,169			12,432			8,888
Interest expense		(42,878	)		(43,726	)		(40,326	)		(49,265	)		(36,145	)
Income (loss) from continuing operations before income taxes and minority interest		51,289			(21,990	)		(83,766	)		(51,067	)		(13,592	)
Provision for income taxes(6)		25,233			34,824			55,073			69,062			41,335
Minority interest		2			3			287			233			11,763
Income (loss) from continuing operations		26,054			(56,817	)		(139,126	)		(120,362	)		(66,690	)
Income (loss) from discontinued operations, net of tax(7)		(32,240	)		(751	)		(49,566	)		(33,544	)		9,346
Net loss	$	(6,186	)	$	(57,568	)	$	(188,692	)	$	(153,906	)	$	(57,344	)
Per share information:
Income (loss) from continuing operations — basic	$	0.28		$	(0.61	)	$	(1.52	)	$	(1.43	)	$	(0.80	)
Discontinued operations		(0.35	)		(0.01	)		(0.54	)		(0.40	)		0.11
Loss per share — basic	$	(0.07	)	$	(0.62	)	$	(2.06	)	$	(1.83	)	$	(0.69	)
Income (loss) from continuing operations — diluted	$	0.28		$	(0.61	)	$	(1.52	)	$	(1.43	)	$	(0.80	)
Discontinued operations		(0.35	)		(0.01	)		(0.54	)		(0.40	)		0.11
Loss per share — diluted	$	(0.07	)	$	(0.62	)	$	(2.06	)	$	(1.83	)	$	(0.69	)
Dividends declared per share of common stock	$	—		$	0.24		$	0.23		$	0.31		$	0.31

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	As of December 31,
	2007		2006		2005		2004		2003
			(Restated)		(Restated)		(Restated)		(Restated)
Balance Sheet Data:
Cash and cash equivalents	$	309,365	$	325,376	$	224,294	$	221,943	$	409,420
Working capital(8)		522,764		464,909		342,351		566,295		985,804
Total assets		1,494,262		1,505,692		1,515,539		1,522,349		1,912,879
Total debt(6)		784,207		787,433		788,934		794,068		1,121,145
Stockholders’ equity(1)(2)(3)(4)(5)(6)(7)(8)		414,103		430,390		435,558		471,538		584,328

Notes to Selected Financial Data:

(1)	Alliance revenue in 2007 included a $19,200,000 milestone payment received from Schering-Plough related to the outlicensing of pradefovir and a $50,000 payment from a third party for the license of certain intellectual property. Alliance revenue prior to 2007 consisted exclusively of royalties from Schering-Plough and Roche on their sales of ribavirin.
(2)	In connection with our acquisitions, portions of the purchase price are allocated to acquired in-process research and development on projects that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. Such costs are charged to research and development expense as of the date of the acquisition. In March 2005 we acquired Xcel for approximately $280,000,000 of which $126,399,000 was allocated to in-process research and development costs and charged to expense. In February 2004, we acquired from Amarin Corporation plc its U.S.-based subsidiary, Amarin Pharmaceuticals, Inc., and all of that subsidiary’s U.S. product rights. The total consideration paid for Amarin was $40,000,000. In August 2003, we repurchased the 20% publicly held minority interest in Ribapharm, Inc. for an aggregate total purchase price of $207,658,000. In connection with these acquisitions, we expensed $11,770,000 and $117,609,000 of in-process research and development in the years ended December 31, 2004 and 2003, respectively.
(3)	In 2006, we recorded a gain on litigation settlement from litigation with a former chief executive officer, Milan Panic, of $17,550,000 relating to Ribapharm bonuses. We also recorded a gain on litigation settlement from litigation with the Republic of Serbia of $34,000,000 relating to the ownership and operations of a joint venture we formerly participated in known as Galenika.
(4)	In 2004, we incurred an expense of $19,344,000 related to our manufacturing and rationalization plan. Our manufacturing sites were tested for impairment resulting in an impairment of asset value on three of the sites. Accordingly, we wrote these sites down to their fair value and recorded asset impairment charges of $18,000,000 and severance charges of $1,344,000 in the year ended December 31, 2004. In 2005 we made the decision to dispose of another manufacturing plant in China which resulted in an asset impairment charge of $2,322,000. In 2005, we also recorded net gains of approximately $1,816,000 resulting from the sale of the manufacturing plants in the United States, Argentina and Mexico.
	In 2006, we incurred an expense of $138,181,000 relating to the 2006 Restructuring. The expense included employee severance costs (259 employees) of $16,997,000, abandoned software and other capital assets of $22,178,000, asset impairment charges relating to fixed assets at two manufacturing facilities and our former headquarters and research facility of $97,344,000 and contract cancellation and other cash charges of $1,662,000.
	In 2007, we incurred restructuring expenses of $23,176,000. In the first half of 2007, we incurred a restructuring expense of $13,575,000 relating to the completion of the 2006 Restructuring, comprising employee severance costs of $5,130,000 contract cancellation costs of $3,115,000, the elimination of accumulated foreign currency translation adjustments of $2,891,000 and asset impairment charges relating to the two manufacturing facilities of $2,439,000. On February 28, 2008, we announced that a strategic review initiated by our board of directors in October 2007 resulted in plans for a new restructuring program. Charges for this restructuring program incurred in 2007 were $9,601,000, comprising $957,000 in executive severances, $4,676,000 for professional service

27

expenses, and $3,968,000 for contract termination and transaction costs associated with the sale of our Asia businesses.

(5)	In May and July 2004, we repurchased $326,000,000 aggregate principal amount of our 61/2% Convertible Subordinated Notes due 2008. In connection with these repurchases, we recorded a loss on early extinguishment of debt of $19,892,000 for the year ended December 31, 2004.
	In November 2003, we completed an offering of $240,000,000 aggregate principal amount of 3.0% Convertible Subordinated Notes due 2010 and $240,000,000 aggregate principal amount of 4.0% Convertible Subordinated Notes due 2013. We used proceeds from this offering to retire $139,589,000 aggregate principal amount of our 61/2% Convertible Subordinated Notes due 2008, resulting in a loss on early extinguishment of debt of $12,803,000. In December 2003, we issued $300,000,000 aggregate principal amount of 7.0% Senior Notes due 2011.
(6)	The tax provision in 2005 included a net charge of $27,368,000 associated with an Internal Revenue Service examination of our U.S. tax returns for the years 1997 to 2001 (including interest). The tax provision in 2007 includes a net credit of $21,521,000 to partially reverse the 2005 charge, as a result of resolving many of the issues raised during the examination through an appeals process. In 2007, 2006, 2005 and 2004, we recorded valuation allowances of $53,106,000, $28,106,000, $39,862,000 and $85,427,000 against our deferred tax asset to recognize the uncertainty of realizing the benefits of our accumulated U.S. and state net operating losses and research credits. In 2007 the increase in the U.S. valuation allowance was offset by liabilities for uncertain tax positions of $60,095,000, with a net decrease of the valuation allowance of $6,989,000. In 2007 we also recorded valuation allowances of $7,615,000 to recognize the uncertainty of realizing the benefits of foreign net operating losses. As of December 31, 2007, the valuation allowances totaled $159,710,000. In addition to these factors, the tax provision in 2005 does not reflect tax benefits for certain of the amounts of acquired in-process research and development charged to expense.
(7)	In September 2007, we reclassified our Infergen operations as discontinued operations. The consolidated financial statements have been reclassified for all historical periods presented. The loss from discontinued operations in 2007 was primarily related to Infergen. In 2006, the loss from discontinued operations was related to Infergen, partly offset by the partial release of $5,648,000 from a reserve for our environmental liability related to our former biomedical facility.
	On December 30, 2005, we acquired the U.S. and Canadian rights to Infergen from InterMune. In this transaction, we charged $47,200,000 to acquired in-process research and development. As a result of the reclassification of the Infergen operations to discontinued operations, this charge was classified as an expense within discontinued operations.
	During 2002, we decided to divest our Russian pharmaceuticals segment, biomedical segment, raw materials business and manufacturing capability in Central Europe, our photonics business and the Circe unit. The loss from discontinued operations in 2004 and the income from discontinued operations in 2003 relate to the disposition of these businesses.
(8)	Working capital in 2007 and 2006 excludes $66,247,000 and $124,821,000, respectively, of assets held for sale.

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Below is a summary of the specific income statement accounts as reported and as affected by the restatement for each of the four years ended December 31, 2006 (in thousands):

	2006			2005			2004			2003
Product sales
As previously reported	$	783,279		$	732,240		$	607,824		$	518,598
Adjustment		(1,717	)		(371	)		1,388			(121	)
As restated	$	781,562		$	731,869		$	609,212		$	518,477
General and administrative expenses
As previously reported	$	115,857		$	108,252		$	99,443		$	111,635
Adjustment		(1,274	)		256			219			(391	)
As restated	$	114,583		$	108,508		$	99,662		$	111,244
Income (loss) from operations, before interest, taxes
As previously reported	$	8,417		$	(49,624	)	$	4,348		$	21,471
Adjustment		(443	)		(627	)		1,169			270
As restated	$	7,974		$	(50,251	)	$	5,517		$	21,741
Loss from continuing operations before income taxes and minority interest
As previously reported	$	(21,547	)	$	(83,139	)	$	(52,236	)	$	(13,862	)
Adjustment		(443	)		(627	)		1,169			270
As restated	$	(21,990	)	$	(83,766	)	$	(51,067	)	$	(13,592	)
Provision for income taxes
As previously reported	$	34,264		$	55,151		$	68,640		$	41,248
Adjustment		560			(78	)		422			87
As restated	$	34,824		$	55,073		$	69,062		$	41,335
Loss from continuing operations
As previously reported	$	(55,814	)	$	(138,577	)	$	(121,109	)	$	(66,873	)
Adjustment		(1,003	)		(549	)		747			183
As restated	$	(56,817	)	$	(139,126	)	$	(120,362	)	$	(66,690	)
Net loss
As previously reported	$	(56,565	)	$	(188,143	)	$	(154,653	)	$	(57,527	)
Adjustment		(1,003	)		(549	)		747			183
As restated	$	(57,568	)	$	(188,692	)	$	(153,906	)	$	(57,344	)

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Below is a summary of the earnings per share information as reported and as affected by the restatement for each of the four years ended December 31, 2006 (in thousands):

	2006			2005			2004			2003
Basic loss per share — as previously reported
From continuing operations	$	(0.60	)	$	(1.51	)	$	(1.44	)	$	(0.80	)
From discontinued operations		(0.01	)		(0.54	)		(0.40	)		0.11
Net loss	$	(0.61	)	$	(2.05	)	$	(1.84	)	$	(0.69	)
Basic income (loss) per share — adjustments
From continuing operations	$	(0.01	)	$	(0.01	)	$	0.01		$	—
From discontinued operations		—			—			—			—
Net income (loss)	$	(0.01	)	$	(0.01	)	$	0.01		$	—
Basic loss per share — as restated
From continuing operations	$	(0.61	)	$	(1.52	)	$	(1.43	)	$	(0.80	)
From discontinued operations		(0.01	)		(0.54	)		(0.40	)		0.11
Net loss	$	(0.62	)	$	(2.06	)	$	(1.83	)	$	(0.69	)
Diluted loss per share — as previously reported
From continuing operations	$	(0.60	)	$	(1.51	)	$	(1.44	)	$	(0.80	)
From discontinued operations		(0.01	)		(0.54	)		(0.40	)		0.11
Net loss	$	(0.61	)	$	(2.05	)	$	(1.84	)	$	(0.69	)
Diluted income (loss) per share — adjustments
From continuing operations	$	(0.01	)	$	(0.01	)	$	0.01		$	—
From discontinued operations		—			—			—			—
Net income (loss)	$	(0.01	)	$	(0.01	)	$	0.01		$	—
Diluted loss per share — as restated
From continuing operations	$	(0.61	)	$	(1.52	)	$	(1.43	)	$	(0.80	)
From discontinued operations		(0.01	)		(0.54	)		(0.40	)		0.11
Net loss	$	(0.62	)	$	(2.06	)	$	(1.83	)	$	(0.69	)

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Below is a summary of the balance sheet account information as reported and as affected by the restatement and certain adjustments for changes in balance sheet classification for each of the four years ended December 31, 2006 (in thousands):

	2006			2005			2004			2003
Cash and cash equivalents
As previously reported	$	326,002		$	224,856		$	222,590		$	410,019
Adjustment		(626	)		(562	)		(647	)		(599	)
As restated	$	325,376		$	224,294		$	221,943		$	409,420
Marketable securities
As previously reported	$	9,743		$	10,210		$	238,918		$	463,962
Adjustment		627			563			648			(1,326	)
As restated	$	10,370		$	10,773		$	239,566		$	462,636
Accounts receivable, net
As previously reported	$	227,452		$	187,987		$	171,860		$	162,402
Adjustment		(301	)		5			—			—
As restated	$	227,151		$	187,992		$	171,860		$	162,402
Prepaid expenses and other current assets
As previously reported	$	16,398		$	30,205		$	23,076		$	13,863
Adjustment		—			(11,260	)		(4,941	)		1,116
As restated	$	16,398		$	18,945		$	18,135		$	14,979
Current deferred tax assets, net
As previously reported	$	8,071		$	6,447		$	1,973		$	15,587
Adjustment		479			589			96			78
As restated	$	8,550		$	7,036		$	2,069		$	15,665
Deferred tax assets, net
As previously reported	$	21,514		$	25,342		$	—		$	—
Adjustment		(296	)		379			901			1,336
As restated	$	21,218		$	25,721		$	901		$	1,336
Other assets
As previously reported	$	53,555		$	43,176		$	40,160		$	49,618
Adjustment		372			11,813			5,348			878
As restated	$	53,927		$	54,989		$	45,508		$	50,496
Assets of discontinued operations
As previously reported	$	226		$	71,141		$	23,894		$	27,994
Adjustment		—			(5	)		—			—
As restated	$	226		$	71,136		$	23,894		$	27,994
Accrued liabilities
As previously reported	$	142,532		$	140,839		$	127,587		$	115,928
Adjustment		4,173			2,488			1,827			2,898
As restated	$	146,705		$	143,327		$	129,414		$	118,826

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	2006			2005			2004			2003
Income taxes
As previously reported	$	39,818		$	47,324		$	20,472		$	14,962
Adjustment		(172	)		—			—			—
As restated	$	39,646		$	47,324		$	20,472		$	14,962
Deferred tax liabilities, net
As previously reported	$	3,255		$	8,208		$	13,823		$	1,835
Adjustment		450			139			102			17
As restated	$	3,705		$	8,347		$	13,925		$	1,852
Other liabilities
As previously reported	$	18,182		$	16,371		$	14,429		$	18,422
Adjustment		6,324			1,359			1,693			(2,460	)
As restated	$	24,506		$	17,730		$	16,122		$	15,962
Liabilities of discontinued operations
As previously reported	$	18,343		$	23,118		$	32,056		$	19,731
Adjustment		(5,657	)		(4,078	)		(4,148	)		—
As restated	$	12,686		$	19,040		$	27,908		$	19,731
Accumulated deficit
As previously reported	$	(848,467	)	$	(770,350	)	$	(560,722	)	$	(380,044	)
Adjustment		(3,345	)		(2,342	)		(1,793	)		(2,538	)
As restated	$	(851,812	)	$	(772,692	)	$	(562,515	)	$	(382,582	)
Accumulated other comprehensive income
As previously reported	$	19,458		$	(21,541	)	$	4,711		$	(33,860	)
Adjustment		(1,518	)		3,956			3,724			3,566
As restated	$	17,940		$	(17,585	)	$	8,435		$	(30,294	)

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Restatement of Prior Period Financial Information

This annual report on Form 10-K includes the restatement of our consolidated financial statements as of and for the years ended December 31, 2006 and 2005. This report also includes the restatement of the selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003 and the restatement of the quarterly financial data in Part II, Item 8 for the three-month periods ended March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007 and September 30, 2007.

As announced in our current report on Form 8-K which we filed with the Securities and Exchange Commission, or SEC, on March 3, 2008, we concluded that our previously filed financial statements should no longer be relied upon due to certain errors in the accounting for foreign operations which were identified during the preparation process for this annual report on Form 10-K and primarily arose during the period January 1, 2002 to September 30, 2007. These included errors impacting annual periods prior to 2007 with a cumulative net charge to income from continuing operations before income taxes of $3,851,000 as of December 31, 2006. The errors also included items originating in the first, second and third quarters of 2007 with a net benefit to income from continuing operations before income taxes of $1,761,000. These errors have been determined to be, in the aggregate, material to the quarter and year ended December 31, 2007 and to certain prior periods including the year ended December 31, 2006, and therefore we are restating our results for the years ended December 31, 2003, 2004, 2005 and 2006. The errors and the cumulative net effect of the corrections through December 31, 2006 and for the nine months ended September 30, 2007 are described as follows and summarized in the table below:

i. Increase in reserves for anticipated product returns based on historical trends and for certain credit memos in Latin America, the cumulative effect of which is a reduction in revenue of $3,953,000 and certain other adjustments of $127,000 through December 31, 2006 and $1,120,000 for the nine months ended September 30, 2007;

ii. Decrease in revenues associated with sales to certain customers in Italy where preexisting rights of return became known in the fourth quarter of 2007, the cumulative effect of which is a reduction of revenues of $290,000 through December 31, 2006 and $1,550,000 for the nine months ended September 30, 2007;

iii. Decrease in costs of goods sold related to bookkeeping errors in recording inventory costing and manufacturing variances in the UK and France, the cumulative effect of which is a reduction in cost of goods sold and a corresponding increase in gross profit of $4,710,000 for the nine months ended September 30, 2007, with no effect prior to January 1, 2007;

iv. Changes in pension expense in UK, Netherlands, Switzerland and Germany resulting from incorrect application of Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, the cumulative effect of which is a decrease in general and administrative expenses of $519,000 through December 31, 2006 and an increase to general and administrative expenses of $279,000 for the nine months ended September 30, 2007; and

v. Changes in income tax expense resulting from the income tax effects of the pre-tax adjustments described in i.-iv. above, resulting in a reduction in income tax expense of $1,331,000 through December 31, 2006 and an increase of $611,000 for the nine months ended September 30, 2007. Additionally, income tax expense increased due to corrections of deferred income taxes in certain foreign locations, resulting in a cumulative increase in income tax expense of $825,000 through December 31, 2006.

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	Nine Months																		Total
	Ended																		Additional
	September 30,			Year Ended December 31,															Income
Income (Expense)	2007			2006			2005			2004			2003			Pre-2003			(Expense)
	(In thousands)
Returns reserve and credit memos in Latin America	$	(1,120	)	$	(1,554	)	$	(371	)	$	1,389		$	(121	)	$	(3,423	)	$	(5,200	)
Reversal of revenue in Italy		(1,550	)		(290	)		—			—			—			—			(1,840	)
Cost of goods bookkeeping in the UK and France		4,710			—			—			—			—			—			4,710
European pension accounting		(279	)		1,401			(256	)		(220	)		391			(797	)		240
Total impact before taxes		1,761			(443	)		(627	)		1,169			270			(4,220	)		(2,090	)
Tax effect on above		(611	)		204			139			(422	)		(87	)		1,497			720
Other deferred tax items		—			(764	)		(61	)		—			—			—			(825	)
Total impact of restatement	$	1,150		$	(1,003	)	$	(549	)	$	747		$	183		$	(2,723	)	$	(2,195	)

The restatement and its impact on fiscal years ended December 31, 2006 and 2005 are discussed in more detail in Note 2 to our consolidated financial statements, which are included herein.

While we have restated the unaudited quarterly information in Part II, Item 8 and intend to amend and restate our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, we have not amended and do not intend to amend any of our other previously filed reports. As we have previously announced, the consolidated financial statements and related information contained in such previously filed reports should no longer be relied upon.

Amounts appearing in Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the years ended December 31, 2006 and 2005 reflect the effects of the restatement as described above.

Identification of Material Weakness

In connection with this restatement, we identified a material weakness in our disclosure controls and procedures and internal control over financial reporting as of December 31, 2007 and reported this to our Finance and Audit Committee. The material weakness, which arose primarily as a result of our lack of a sufficient complement of personnel in our foreign locations and monitoring controls at the corporate level and is further described below in Item 9A of this Form 10-K, resulted in the restatement of our prior period financial information included in this report. We are in the process of identifying and implementing a plan to address the material weakness in internal control over financial reporting. This remediation is discussed in more detail in Item 9A. For this reason, the discussion and data set forth in this section may not be comparable to discussions and data in our previously filed reports.

Company Overview

Introduction

We are an international pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Historically, our marketing and promotion efforts focused on our Promoted Products, which consisted of products marketed globally, regionally, or locally with annual sales in excess of $5,000,000. Our products are currently sold in more than 100 markets around the world.

Although historically we have focused most of our efforts on neurology, dermatology, and infectious disease, our prescription pharmaceutical products also treat, among other things, neuromuscular disorders, cancer, cardiovascular disease, diabetes and psychiatric disorders. Our products are sold through three pharmaceutical segments comprising: North America, International (Latin America, Asia, and Australasia) and EMEA (Europe, Middle East, and Africa).

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Strategic Review and Restructuring

In October 2007, our board of directors initiated a strategic review of our business direction, geographic and commercial operations, product and business portfolio, growth opportunities and acquisition strategy. This strategic review, which we refer to as the “2008 Strategic Review,” is still underway as of the date of this filing and we expect to describe it in an announcement in late March 2008. We expect the 2008 Strategic Review to lead to significant changes in our business and will include a restructuring program.

Prior to the start of the 2008 Strategic Review, we reviewed our portfolio for products and geographies that did not meet our growth and profitability expectations and divested or discontinued certain non-strategic products as a result. In September 2007, we decided to sell our rights to Infergen. We sold these rights to Three Rivers Pharmaceuticals, LLC on January 14, 2008. In 2007, we also sold product rights to Reptilase, Solcoseryl in Japan, our ophthalmic business in Holland, and certain other products. In December 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd. (“Invida”) to sell Invida certain Valeant subsidiaries and product rights in Asia, in a transaction that includes certain of our subsidiaries, branch offices, and commercial rights in Singapore, the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This transaction also includes certain product rights in Japan. We closed this transaction on March 3, 2008. The assets sold to Invida have been classified as “held for sale” in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as of December 2007.

We announced on February 4, 2008 that our board of directors had appointed J. Michael Pearson to the position of chief executive officer and chairman of our board of directors effective February 1, 2008, the date of the resignation of our former chief executive officer, Timothy C. Tyson. Robert A. Ingram, who served as chairman prior to Mr. Pearson’s appointment, remains on our board of directors, serving as lead director. Prior to joining Valeant as our chief executive officer, Mr. Pearson was a director at McKinsey & Company, where he had served as head of the global pharmaceutical practice, as a member of its board of directors and in various other capacites.

Retigabine — RESTORE 1 Data Announcement

On February 12, 2008 we reported results for retigabine in RESTORE 1, the first of two Phase III pivotal trials using retigabine as an adjunctive treatment for adult epilepsy patients with refractory partial-onset seizures. RESTORE 1 evaluated the 1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo in patients taking stable doses of one to three additional anti-epileptic drugs. Retigabine demonstrated statistically significant results on the primary efficacy endpoints important for regulatory review by both the US Food and Drug Administration (FDA) and the European Medicines Evaluation Agency (EMEA). More details on the RESTORE 1 data announcement are provided in Item 7, Products in Development.

Taribavirin — 12-week analysis of the Phase IIb study

On March 17, 2008 we reported the results of the 12-week analysis of the taribavirin Phase IIb study. The Phase IIb study is a U.S. multi-center, randomized, parallel, open-label study in 278 treatment naïve, genotype 1 patients evaluating taribavirin at 20 mg/kg, 25 mg/kg, and 30 mg/kg per day in combination with pegylated interferon alfa-2b. The control group is being administered weight-based dosed ribavirin (800/1,000/1,200/1,400 mg daily) and pegylated interferon alfa-2b. The 12-week early viral response (EVR) data from the Phase IIb study showed comparable reductions in viral load for weight-based doses of taribavirin and ribavirin. The anemia rate was statistically significantly lower for patients receiving taribavirin in the 20mg/kg and 25mg/kg arms versus the ribavirin control arm. More details on the taribavirin Phase IIb study announcement are provided in Item 7, Products in Development. We are using the data to explore the options for the continued role of taribavirin in our portfolio, including consideration of partnering opportunities.

Infergen (Reported in Discontinued Operations)

On December 30, 2005, we acquired the U.S. and Canadian rights to the hepatitis C drug Infergen from InterMune. In September 2007, we decided to divest these Infergen product rights and we sold them to Three Rivers Pharmaceuticals, LLC on January 14, 2008. The results of the Infergen operations and the related financial position have been reflected as discontinued operations in the consolidated financial statements in accordance with

35

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

Ribavirin Royalties

Our royalties are derived from sales of ribavirin, a nucleoside analog that we discovered. In 1995, Schering-Plough licensed from us all oral forms of ribavirin for the treatment of chronic hepatitis C. We also licensed ribavirin to Roche in 2003. Roche discontinued royalty payments to us in June 2007 when the European Patent Office revoked a ribavirin patent which would have provided protection through 2017.

Ribavirin royalty revenues were $67,202,000, $81,242,000 and $91,646,000 for the years ended December 31, 2007, 2006 and 2005, respectively, and accounted for 8%, 9% and 11% of our total revenues in 2007, 2006 and 2005, respectively. Royalty revenues in 2007, 2006 and 2005 were substantially lower than those in prior years. This decrease had been expected and relates to: 1) Roche’s discontinuation of royalty payments to us in June 2007, 2) Schering-Plough’s market share losses in ribavirin sales, 3) reduced sales in Japan from a peak in 2005 driven by the launch of combination therapy and 4) further market share gains by generic competitors in the United States since they entered the market in April 2004.

We expect ribavirin royalties to continue to decline in 2008. The royalty will decline significantly in 2009 in that royalty payments from Schering-Plough will continue for European sales only until the ten-year anniversary of the launch of the product, which varied by European country and started in May 1999. We expect that royalties from Schering-Plough in Japan will continue after 2009.

Specialty Pharmaceuticals

Product sales from our specialty pharmaceuticals segment accounted for 90% of our total revenues from continuing operations for the year ended December 31, 2007, compared to 91% for 2006. Product sales increased for the year ended December 31, 2007 compared with 2006 by $4,208,000.

Our current product portfolio comprises approximately 352 branded products, with approximately 1,974 stock keeping units. We market our products globally through a marketing and sales force consisting of approximately 1,652 employees. We focus our sales, marketing and promotion efforts on the Promoted Products within our product portfolio. We have identified these Promoted Products as offering the best potential return on investment. The majority of our Promoted Products are in our three targeted therapeutic areas. Promoted Products in other therapeutic areas have characteristics and regional or local market positions that also offer significant growth and returns on marketing investments.

Our future growth is expected to be driven primarily by the commercialization of new products, growth of our existing products, and business development. Our Promoted Products accounted for 58% and 55% of our specialty pharmaceutical product sales for the years ended December 31, 2007 and 2006, respectively. Sales of our Promoted Products increased $25,941,000 (6%) in the year ended December 31, 2007 compared to 2006.

We have experienced generic challenges and other competition to our products, as well as pricing challenges through government imposed price controls and reductions, and expect these challenges to continue in 2008 and beyond.

Research and Development

We are developing product candidates, including two clinical stage programs, retigabine and taribavirin, which target large market opportunities. Retigabine is being developed as an adjunctive treatment for partial-onset seizures in patients with epilepsy. Taribavirin is a pro-drug of ribavirin, for the treatment of chronic hepatitis C in treatment-naive patients in conjunction with a pegylated interferon.

Epilepsy

There are more than 50 million people worldwide who have epilepsy, with approximately 6 million people afflicted with the disease in the United States, the European Union, and Japan. The majority of all epilepsy patients

36

are adequately and appropriately treated with the first or second AED they try. However approximately 30% of patients with epilepsy do not respond adequately to existing therapies despite trying multiple different AEDs. These patients are considered to have refractory epilepsy, thus representing the greatest unmet need in epilepsy treatment.

Chronic Hepatitis C

Worldwide, approximately 170 million individuals are infected with the hepatitis C virus. In the United States alone, 3-4 million individuals are infected. Current therapies consist of pegylated interferon alfa and ribavirin with a sustained virological response ranging as high as 54% to 56%.

Acquisitions

In 2007, we acquired product rights in the United States, Europe, and Argentina for aggregate consideration of $40,803,000, of which $36,184,000 was cash consideration. In the United States, we acquired a paid-up license for Kinetin and Zeatin, the active ingredients in the Kinerase product line, for cash consideration of $21,000,000 and other consideration of $4,170,000. In Europe we acquired the rights to Nabilone, the product we currently market as Cesamet in Canada and the United States, for $13,582,000. We acquired the rights to certain products in Poland, Argentina and Spain for $1,602,000 in cash consideration and $449,000 in other consideration.

In 2006, we acquired rights to new product lines in Poland and the UK. In Poland we acquired the rights to a number of branded generic products for nominal cash consideration. In the UK we acquired exclusive rights to distribute certain dermatological skin care products from Intendis AG, including Finacea, Skinoren, Scheriproct and Ultrabase. In 2006, we also acquired the rights to Zelapar in Canada and Mexico. We had acquired the rights to Zelapar in the United States as part of the Amarin acquisition in 2004 and launched the product in the United States in 2006. In 2006, we also acquired from Novartis the rights to Melleril in Argentina, having acquired the rights to this product in Brazil in 2005.

On December 30, 2005, we acquired the U.S. and Canadian rights to the hepatitis C drug Infergen from InterMune. We paid InterMune $120,000,000 in cash at the closing. Subsequently, we paid InterMune a non-contingent milestone payment of $2,585,000 in January 2007 and a $5,000,000 contingent milestone in July 2007 which we recorded as goodwill. In September 2007, we decided to divest these Infergen product rights and we sold them to Three Rivers Pharmaceuticals, LLC on January 14, 2008. The results of the Infergen operations and the related financial position have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

On March 1, 2005, we acquired Xcel Pharmaceuticals, Inc. (“Xcel”), a specialty pharmaceutical company focused on the treatment of disorders of the central nervous system, for $280,000,000 in cash, plus expenses of $5,435,000. Under the terms of the purchase agreement, we paid an additional $7,470,000 as a post-closing working capital adjustment. The Xcel acquisition expanded our existing neurology product portfolio with four products that are sold within the United States, and retigabine, a late-stage clinical product candidate that is an adjunctive treatment for partial-onset seizures in patients with epilepsy.

See Note 4 of notes to consolidated financial statements for further discussion of these acquisitions.

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Results of Operations

We have three specialty pharmaceutical segments comprising our pharmaceuticals operations in North America, International (Latin America, Asia and Australasia) and Europe, Middle East, and Africa (EMEA). In addition, we have a research and development division. Certain financial information for our business segments is set forth below (in thousands). This discussion of our results of operations should be read in conjunction with the consolidated financial statements included elsewhere in this document. For additional financial information by business segment, see Note 17 of notes to consolidated financial statements included elsewhere in this document.

	2007			2006			2005
				(Restated)			(Restated)
Revenues
Specialty pharmaceuticals
North America	$	276,671		$	264,393		$	232,342
International		201,310			239,597			219,319
EMEA		307,789			277,572			280,208
Total specialty pharmaceuticals		785,770			781,562			731,869
Alliance revenues (including ribavirin royalties)		86,452			81,242			91,646
Consolidated revenues	$	872,222		$	862,804		$	823,515
Operating Income (Loss)
Specialty pharmaceuticals
North America		100,855			90,359			69,286
International		34,189			71,697			65,407
EMEA		55,700			45,822			35,937
		190,744			207,878			170,630
Corporate expenses		(75,525	)		(75,382	)		(54,738	)
Total specialty pharmaceuticals		115,219			132,496			115,892
Restructuring charges and asset impairment		(23,176	)		(138,181	)		(1,253	)
Gain on litigation settlement		—			51,550			—
Research and development		(16,728	)		(37,891	)		(38,491	)
Acquired IPR&D		—			—			(126,399	)
Consolidated segment operating income (loss)		75,315			7,974			(50,251	)
Interest income		17,792			12,610			13,169
Interest expense		(42,878	)		(43,726	)		(40,326	)
Other, net		1,060			1,152			(6,358	)
Income (loss) from continuing operations before provision for income taxes	$	51,289		$	(21,990	)	$	(83,766	)

Year Ended December 31, 2007 Compared to 2006

Specialty Pharmaceutical Revenues:  Total consolidated revenues increased $9,418,000 for the year ended December 31, 2007 compared with 2006. Total specialty pharmaceutical product sales increased $4,208,000 (1%) for the year ended December 31, 2007 over 2006. Specialty pharmaceutical product sales in 2007 included a 5% favorable impact from foreign exchange rate fluctuations and a 1% aggregate increase in price, partly offset by a 5% reduction in volume. A significant factor that contributed to this reduction was the sales decline in Mexico, partly offset by sales increases in Central Europe, Canada, and the United Kingdom. The reported sales declines in Mexico were also impacted by accounting reserves for product returns and credits memos. The reported sales for the year ended December 31, 2007 include $4,144,000 for products divested in 2007 (Reptilase, Solcoseryl in Japan and our

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former ophthalmic business in the Netherlands), compared to $15,403,000 of revenue reported for these products in 2006.

Approximately 58% of our total pharmaceutical revenues resulted from sales of Promoted Products in 2007. We define Promoted Products as being those that we promote with annual sales of greater than $5,000,000. Worldwide sales of Promoted Products totaled $453,082,000 in 2007, an increase of $25,941,000 or 6% over 2006. The increased sales in Promoted Products were partially offset by declines in sales of non-promoted products.

In our North America pharmaceuticals segment, revenues for the year ended December 31, 2007 increased $12,278,000 (5%) over 2006. This increase reflects the growth in Cesamet sales in Canada, a full year of Zelapar sales in the United States, and sales increases in Librax, Kinerase, and Migranal. Cesamet sales were primarily in Canada. These sales increases were offset by sales decreases of Efudex, Imovane, and Limbitrol. Decreases in Efudex sales were expected and were a result of our launch of an authorized generic in December 2006. The increase in North American pharmaceutical sales for the year ended December 31, 2007 was due to a 7% percent increase in price and a 1% positive contribution from the appreciation of the Canadian Dollar, offset by a 3% decline in volume.

In our International pharmaceuticals segment, revenues for the year ended December 31, 2007 decreased $38,287,000 (16%). The decrease was due to the reduced shipments to our largest wholesalers in Mexico who had ceased making payments to us because they felt disadvantaged by changes we made in our distribution channel in 2006. This situation continued to impact sales in the fourth quarter of 2007 and affected most of our products in Mexico. Results in Mexico were also impacted by increased reserves for returns and discounts. Reptilase sales in 2007 decreased $5,337,000 because we stopped selling Reptilase with the sale of our Basel, Switzerland manufacturing plant in June 2007. International sales in 2007 reflected an 18% reduction in volume, partly offset by a 2% benefit from foreign currency.

In our EMEA pharmaceuticals segment, revenues for the year ended December 31, 2007 were $307,789,000, an increase of $30,217,000 (11%). The increase in the value of currencies in the region relative to the U.S. Dollar contributed $25,743,000 to revenues in the region in 2007. Sales of Nabilone (Cesamet) in the United Kingdom and Spain were $3,462,000 in 2007. We acquired these product rights in January 2007. Sales of the dermatology products licensed from Intendis, including Finacea, were $2,885,000 in 2007, compared with $498,000 in 2006. We licensed these products in September 2006. Much of the segment’s growth was in Central and Eastern Europe and the United Kingdom. Sales of Promoted Products in 2007 were $127,128,000 compared to $99,948,000 in 2006, an increase of $27,180,000 (27%). The increases in revenues from higher Promoted Product sales and stronger European currencies were partly offset by reductions in sales of non-promoted products. Sales in several European countries were also negatively affected by pricing policies imposed by governmental authorities. EMEA sales in 2007 were impacted by a 9% positive contribution from currency fluctuations and a 5% increase in volume, offset by a 3% aggregate reduction in prices.

Alliance Revenue (including Ribavirin royalties):  Alliance revenue in the year ended December 31, 2007 included a licensing payment of $19,200,000 which we received in the first quarter of 2007 from Schering-Plough as a payment for the license to pradefovir. In September 2007, we announced an agreement with Schering-Plough and Metabasis which returned all pradefovir rights to Metabasis. We retained the $19,200,000 licensing payment but expect to receive no future income from pradefovir. Alliance revenue in 2007 also included $50,000 paid to us by an unrelated third party in the first quarter of 2007 for certain intellectual property assets. Alliance revenue in 2006 consisted exclusively of ribavirin royalties.

Ribavirin royalties for the year ended December 31, 2007 were $67,202,000 compared to $81,242,000 for 2006, a decrease of $14,040,000 (17%). Ribavirin royalty revenues decreased due to (i) Roche’s discontinuation of royalty payments to us in June 2007, (ii) Schering-Plough’s market share losses in ribavirin sales, and (iii) reduced sales in Japan from a peak in 2005 driven by the launch of combination therapy. We expect ribavirin royalties to continue to decline in 2008. The royalty will decline significantly in 2009 in that royalty payments from Schering-Plough will continue for European sales only until the ten-year anniversary of the launch of the product, which varied by European country and started in May 1999. We expect royalties from Schering-Plough in Japan will continue after 2009.

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Gross Profit Margin (excluding amortization):  Gross profit margin was impacted in 2007 by increases in reserves for returns and discounts in Mexico. Gross profit calculations exclude amortization which is discussed below. Gross profits by segment are as follows (dollar amounts in thousands):

										Increase
	Year Ended December 31,									(Decrease)
	2007			2006			2005			07/06			06/05
Gross Profits (Specialty Pharmaceuticals Only)
North America	$	232,654		$	220,834		$	186,561			5	%		18	%
% of product sales		84	%		84	%		80	%
International		133,656			161,970			152,195			(17	)%		6	%
% of product sales		66	%		68	%		69	%
EMEA		186,366			160,617			170,755			16	%		(6	)%
% of product sales		61	%		58	%		61	%
Consolidated Gross Profits		552,676			543,421			509,511			2	%		7	%
% of product sales		70	%		70	%		70	%

Selling Expenses:  Selling expenses were $259,324,000 for the year ended December 31, 2007 compared to $244,757,000 for 2006, an increase of $14,567,000 (6%). As a percent of product sales, selling expenses were 33% for the year ended December 31, 2007 and 31% for the corresponding period in 2006. The increase in selling expense reflects increased promotional activities related to the newly launched products in Central Europe and the United Kingdom. Selling expense in 2007 included a $2,776,000 bad debt provision for Mexico, sales force severance costs of $2,680,000 in Germany, Italy, and Latin America, and a $2,059,000 bad debt provision in Austria.

General and Administrative Expenses:  General and administrative expenses were $111,721,000 for the year ended December 31, 2007 compared to $114,583,000 for 2006, a decrease of $2,862,000 (2%). General and administrative expenses included $8,708,000 in stock-based compensation expenses, a reduction of $4,989,000 from the corresponding expenses recorded in general and administrative expenses in 2006. General and administrative expenses in 2007 included information technology improvements, legal, and business development costs, professional service fees, and a payroll tax withholding charge related to a former executive. As a percent of product sales, general and administrative expenses were 14% for the year ended December 31, 2007 compared to 15% for 2006.

Research and Development:  Research and development expenses were $98,025,000 for the year ended December 31, 2007 compared with $105,442,000 for 2006, a reduction of $7,417,000 (7%). The decrease in research and development expenses was primarily attributable to the completion of the VISER clinical trials for taribavirin and savings from our strategic restructuring program including the divestment of our discovery operations in December 2006. On January 9, 2007, we licensed the development and commercialization rights to pradefovir to Schering-Plough, who subsequently returned these rights to Metabasis after the results of a long-term preclinical study was released. On December 21, 2006, we sold our HIV and cancer development programs and certain discovery and preclinical assets to Ardea, with an option for us to reacquire rights outside of the United States and Canada to commercialize the compound being developed in the HIV program upon Ardea’s completion of Phase IIb trials. Research and development expenses in 2006 included a $7,000,000 milestone payment related to the development of retigabine. It is expected that clinical development expenses will decline in 2008 as a result of the completion of the Phase III clinical trials with retigabine.

Our rights to retigabine are subject to the Asset Purchase Agreement between Meda Pharma Gmbh & Co KG (as successor to Viatris Gmbh & Co KG) and Xcel Pharmaceuticals, Inc. by which Xcel acquired the rights to retigabine. The provisions of that agreement require milestone payments of $8,000,000 upon acceptance of filing of the NDA and $6,000,000 upon approval of the NDA. We expect to expense the NDA filing milestone in 2008.

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Amortization:  Amortization expense was $71,567,000 for the year ended December 31, 2007 compared to $65,276,000 for 2006, an increase of $6,291,000 (10%). The increase was primarily due to amortization of intangibles acquired with the acquisition of the Kinerase product rights and Nabilone in the United Kingdom and Spain, offset in part by a decrease in the amortization of a royalty intangible which was acquired in the Ribapharm acquisition and is being amortized on an accelerated basis. We expect this royalty intangible to be fully amortized in June 2008. Additionally, in 2007, we recorded asset impairment charges on a product sold in Spain in the amount of $310,000. In 2006, we recorded asset impairment charges on certain products sold in the Spain in the amount of $1,075,000.

Gain on Litigation Settlement:  Litigation settlements contributed significantly to operating profit in 2006. The recoveries in 2006 included the settlement with the Republic of Serbia relating to the ownership and operations of a joint venture we formerly participated in known as Galenika of $34,000,000 of which $28,000,000 was received in 2006, and the settlement of litigation with a former chief executive officer, Milan Panic relating to Ribapharm bonuses, for which we received $20,000,000 and recorded a gain from litigation of $17,550,000 in 2006.

Restructuring Charges and Asset Impairments:  In 2007 and 2006 we incurred $23,176,000 and $138,181,000, respectively, in restructuring charges relating to severance charges, contract cancellations, and asset impairments.

Restructuring Charge Detail

2007 Restructuring Charges

In 2007 we recorded a restructuring charge of $23,176,000 which consisted of $13,575,000 for the 2006 Restructuring and $9,601,000 for the restructuring program that will be announced in connection with the 2008 Strategic Review.

In December 2007 we signed an agreement with Invida to sell certain subsidiaries and product rights in Asia, in a transaction that includes certain Valeant subsidiaries, branch offices, and commercial rights in Singapore, the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia, and Macau. We closed this transaction March 3, 2008. This transaction also included certain product rights in Japan. In 2007, we recognized $3,968,000 in contract termination and transaction costs as restructuring charges in support of this transaction. The assets related to this transaction were classified as “held for sale” in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in December 2007.

2008 Strategic Review and Restructuring: In October 2007, our board of directors initiated a strategic review of our business direction, geographic operations, product portfolio, growth opportunities, and acquisition strategy. This 2008 Strategic Review is still underway as of the date of this filing and we expect to describe it in an announcement in late March 2008. We expect the 2008 Strategic Review to lead to significant changes in our business and will include a restructuring program. The charges taken in 2007 for this 2008 restructuring include $957,000 for certain executive severances, $4,676,000 for professional service expenses for management consultants assisting with the Strategic Review, and the $3,968,000 contract termination and transaction costs associated with the sale of our Asia businesses and product rights to Invida.

We expect additional restructuring charges in 2008. We have accounted for severance costs pursuant to SFAS No. 112, Employers’ Accounting for Post-employment Benefits and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. As a result, we have incurred severance obligations of $8,345,000 related to the severance of our former chief executive officer in 2008 that will be recorded in the first quarter of 2008. This severance will include $3,676,000 in cash consideration.

March 2006 — June 2007 Restructuring Charges

On April 3, 2006, we announced a restructuring program to reduce costs and accelerate earnings growth (the “2006 Restructuring”). The 2006 Restructuring was primarily focused on our research and development and manufacturing operations. The objective of this restructuring program as it related to research and development activities was to focus our efforts and expenditures on two late stage projects currently in development. In December 2006 we sold our HIV and cancer development programs and certain discovery and pre-clinical assets to Ardea Biosciences, Inc. (“Ardea”), with an option for us to reacquire rights outside of the United States and Canada

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to commercialize the compound being developed in the HIV program upon Ardea’s completion of Phase IIb trials. In March 2007, we sold our former headquarters building in Costa Mesa, California, where our former research laboratories were located, for net proceeds of $36,758,000.

The objective of the 2006 Restructuring as it related to manufacturing was to further rationalize our manufacturing operations to reflect the regional nature of our existing products and further reduce our excess capacity after considering the delay in the development of taribavirin. In December 2006, we transferred our former factories in Basel, Switzerland and Puerto Rico to a “held for sale” classification in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In June 2007, we sold these manufacturing facilities and the related inventories to Legacy Pharmaceuticals International for aggregate proceeds of $29,500,000, of which $12,000,000 was received as consideration for inventories sold to Legacy Pharmaceuticals International and $17,500,000 was received as consideration for the manufacturing facilities. The transaction also included transition payment obligations of $6,000,000 to be paid by Valeant to Legacy Pharmaceuticals International over a 24-month period as well as capital expenditure obligations of $650,000 to be incurred by us. The sale of these manufacturing facilities to Legacy Pharmaceuticals International in June 2007 completed the 2006 Restructuring.

The charges in the 2006 Restructuring included impairment charges resulting from the sale of our former headquarters facility, discovery and pre-clinical operations equipment, and our former manufacturing facilities in Puerto Rico and Basel, Switzerland. The restructuring included the reduction of approximately 850 employees, the majority of whom work in the two manufacturing facilities sold to Legacy Pharmaceuticals International. As of December 31, 2007, employee severance costs in the 2006 Restructuring have been recorded for approximately 490 employees and no severance payments have been recorded for the remaining employees who transferred to Legacy Pharmaceuticals International.

The 2006 Restructuring also rationalized selling, general and administrative expenses primarily through consolidation of the management functions in fewer administrative groups to achieve greater economies of scale. Management and administrative responsibilities for our regional operations in Australia, Africa and Asia, which had previously been managed as a separate business unit, were combined in 2006 with those of other regions.

We recorded a restructuring provision for the 2006 Restructuring of $13,575,000 in 2007, compared with $138,181,000 for 2006. Severance charges recorded as part of this restructuring program were $22,127,000.

Abandoned software and other capital assets included an expense of $20,453,000 in 2006 relating to an Enterprise Resource Planning (ERP) project, which was discontinued in March 2006. It also included $632,000 of cash-related charges.

Restructuring Charge Details (in thousands)

	Year Ended		Year Ended
	December 31,		December 31,		Cumulative
	2007		2006		Total Incurred
2006 Restructuring Program
Employee severances	$	5,130	$	16,997	$	22,127
Contract cancellation and other cash costs		3,115		1,662		4,777
Subtotal: cash charges		8,245		18,659		26,904
Abandoned software and other capital assets		—		22,178		22,178
Write-off of accumulated foreign currency translation adjustments		2,891		—		2,891
Impairment of manufacturing and research facilities		2,439		97,344		99,783
Subtotal: non-cash charges		5,330		119,522		124,852
Total:	$	13,575	$	138,181	$	151,756

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	Year Ended
	December 31,
	2007
2008 Restructuring Program
Employee severances	$	957
Contract cancellation and other cash costs		8,644
Subtotal: cash charges		9,601
Subtotal: non-cash charges		—
Total:	$	9,601

Reconciliation of Cash Restructuring Payments with Restructuring Accrual

Cash-related charges in the above table relate to severance payments and other costs which have been either paid with cash expenditures or have been accrued and will be paid with cash in future quarters. The $3,979,000 restructuring accrual for the 2006 Restructuring, accrued as of December 31, 2007, relates to ongoing contractual payments to Legacy Pharmaceuticals International relating to the sale of our former manufacturing sites in Basel, Switzerland and Puerto Rico. These payment obligations last until June 30, 2009. A summary of accruals and expenditures of restructuring costs which will be paid in cash is as follows (in thousands):

2006 Restructuring: Reconciliation of Cash Payments and Accruals
Opening balance, commencement of restructuring	$	—
Charges to earnings		19,291
Cash paid		(14,075	)
Restructuring accrual, December 31, 2006		5,216
Charges to earnings		8,245
Transition and capital expenditure payment obligations		6,813
Cash paid		(16,295	)
Restructuring accrual, December 31, 2007	$	3,979
2008 Restructuring: Reconciliation of Cash Payments and Accruals
Opening balance, commencement of restructuring	$	—
Charges to earnings		9,601
Cash paid		(1,080	)
Restructuring accrual, December 31, 2007	$	8,521

Other Income, Net, Including Translation and Exchange:  Other income, net, including translation and exchange was income of $1,060,000 for the year ended December 31, 2007 compared with income of $1,152,000 for 2006. In both 2007 and 2006 the amounts represent primarily the effects of translation gains and losses in Europe and Latin America. Translation and exchange gains are primarily related to U.S. Dollar denominated assets and liabilities at our foreign currency denominated subsidiaries.

Interest Expense and Income:  Interest income increased $5,182,000 during the year ended December 31, 2007 compared to 2006 due to higher cash balances. Interest expense decreased $848,000 during the year ended December 31, 2007 compared to 2006, due to lower interest rates associated with our variable rate debt.

Income Taxes:  We recorded tax expense of $25,233,000 in 2007 and $34,824,000 in 2006. This occurred primarily because no tax benefits were recorded for the U.S. operating losses. In 2007, income tax expense was also increased by recording valuation allowances of $7,615,000 for foreign deferred tax assets, and it was reduced by $21,521,000 as a result of settling the IRS examination issues for the years ended December 31, 1997 through 2001. In 2007 and 2006, the effective rate was also affected by the pre-tax losses resulting from restructuring, and asset

43

impairment charges in Asia and Puerto Rico of $15,430,000 and $37,223,000, respectively, for which no tax benefit was recorded.

In 2007 and 2006, we recorded valuation allowances against the deferred tax assets associated with the U.S. tax benefits we will receive as income tax loss carryforwards are offset against U.S. taxable income in future years. In 2007 we also recorded valuation allowances against non-U.S. deferred tax assets. These reserves were recorded since we cannot be certain that sufficient taxable income will be generated to utilize the tax benefits of the losses and credits before they expire. In 2007, the valuation allowance was reduced for amounts that were recorded as uncertain tax positions. As of December 31, 2007 the valuation allowance against deferred tax assets totaled $159,710,000. The valuation allowance also has the effect of deferring certain amounts that would normally impact the effective tax rate.

Loss from Discontinued Operations:  The loss from discontinued operations was $32,240,000 in 2007 compared to a loss of $751,000 for 2006. The losses in 2007 and 2006 related to our Infergen business. In 2006, the loss related to the Infergen operations of $8,290,000 was offset in part by the reduction of $5,648,000 in an environmental reserve for the discontinued biomedical facility. The cost of goods sold of discontinued operations in 2007 included a technology transfer payment of $5,259,000 made to the future manufacturer of Infergen.

Year Ended December 31, 2006 Compared to 2005

Specialty Pharmaceutical Revenues:  Approximately 55% of our total pharmaceutical revenues resulted from sales of Promoted Products in 2006. Worldwide sales of Promoted Products totaled $427,141,000 in 2006, an increase of $59,056,000 or 16% over 2005. The increased sales in Promoted Products were partially offset by declines in sales of non-promoted products.

In our North America pharmaceuticals segment, revenues for the year ended December 31, 2006 increased $32,051,000 (14%) over 2005. This increase reflects the $14,336,000 increase in Efudex sales, the full year of Xcel products compared with ten months in 2005 and the growth in Cesamet sales in Canada. Efudex sales increases resulted from a combination of factors, including the launch at the end of the year of our generic version of the product, changes in wholesaler buying patterns, and price increases taken earlier in the year. These volume increases were partially offset by volume decreases of non-promoted products. The increase in North American pharmaceutical sales for the year ended December 31, 2006 was due to a 5% percent increase in volume, an 8% increase in price, and a 1% percent positive contribution from the appreciation of the Canadian Dollar.

In our International pharmaceuticals segment, revenues for the year ended December 31, 2006 increased $20,278,000. Sales of Promoted Products in the region totaled $122,769,000 in 2006, an increase of $14,075,000 (13%) over 2005. Revenues from Bedoyecta, which is our highest revenue product in Mexico, were $49,935,000 in 2006, an increase of $3,173,000 (7%) over 2005 reflecting a successful direct-to-consumer marketing campaign. The increases in revenues were partially offset by volume decreases of non-promoted products. On a net basis, the increase in sales in the International segment was primarily impacted by price increases and reduced discounts to wholesalers. International sales in 2006 resulted from an aggregate 10% price increase, a 1% reduction in volume, and a negligible currency impact.

In our EMEA pharmaceuticals segment, revenues for the year ended December 31, 2006 were $277,572,000, a decrease of $2,636,000. The increase in the value of currencies in the region relative to the U.S. Dollar contributed $4,570,000 to revenues in the region in 2006. Sales of Promoted Products in 2006 were $99,948,000 compared to $90,332,000 in 2005 an increase of $9,616,000 (11%). The increases in revenues from higher promoted product sales and stronger European currencies were offset by reductions in sales of non-promoted products. Sales in several European countries were also negatively affected by pricing policies imposed by governmental authorities. EMEA sales in 2006 were impacted by a 2% positive contribution from currency fluctuations, a 3% reduction in volume, and a negligible change in aggregate prices.

Ribavirin Royalties:  Ribavirin royalties from Schering-Plough and Roche for the year ended December 31, 2006 were $81,242,000 compared to $91,646,000 for 2005, a decrease of $10,404,000 (11%). 2006 ribavirin royalty revenues decreased due to (i) competitive dynamics between Roche and Schering-Plough in Europe, as Roche’s version of ribavirin, Copegus, gained market share over Schering-Plough’s version of ribavirin, Rebetol, (ii) reduced

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sales in Japan from a peak in 2005 driven by the launch of combination therapy there, and (iii) further gains in market share by generic competitors in the United States.

Gross Profit Margin:  Our gross profit margin was 70% in 2006 and 2005. Gross profit calculations exclude amortization which is discussed below. Consolidated cost of goods sold in 2006 included a provision of $1,256,000 related to employee stock options and purchase programs following the implementation of SFAS 123(R).

Selling Expenses:  Selling expenses were $244,757,000 for the year ended December 31, 2006 compared to $232,316,000 for 2005, an increase of $12,441,000 (5%). As a percent of product sales, selling expenses were 31% for the year ended December 31, 2006 and 32% for the year ended December 31, 2005. Included in selling expenses for the year ended December 31, 2005 were severance charges of $3,000,000 related to the sales force restructuring in Europe. This increase reflects our increased promotional efforts primarily in North America and Latin America and includes costs related to new product launches and line extensions. Selling expenses in 2006 included a provision of $3,390,000 related to employee stock options and purchase programs following the implementation of SFAS 123(R).

General and Administrative Expenses:  General and administrative expenses were $114,583,000 for the year ended December 31, 2006 compared to $108,508,000 for 2005, an increase of $6,075,000 (6%). As a percent of product sales, general and administrative expenses were 15% for the years ended December 31, 2006 and December 31, 2005. General and administrative expenses in 2006 included a provision of $13,697,000 related to employee stock options and purchase programs following the implementation of SFAS 123(R).

Research and Development:  Research and development expenses were $105,442,000 for the year ended December 31, 2006 compared with $114,100,000 for 2005, a reduction of $8,658,000 (8%). The decrease in research and development expenses was primarily attributable to the completion of the VISER Phase III clinical trials for taribavirin, the completion of Phase II clinical trials for pradefovir, and the strategic restructuring announced April 3, 2006. Research and development expenses in 2006 included a $7,000,000 milestone payment related to the development of retigabine. Research and development expenses in 2006 included a provision of $2,505,000 related to employee stock options and purchase programs following the implementation of SFAS 123(R).

Amortization:  Amortization expense was $65,276,000 for the year ended December 31, 2006 compared to $68,832,000 for 2005, a decrease of $3,556,000 (5%). The decrease was primarily due to the decrease in the amortization of a royalty intangible which was acquired in the Ribapharm acquisition and is being amortized on an accelerated basis. Additionally, in 2006, we recorded asset impairment charges on certain products sold in Spain in the amount of $1,075,000. In 2005, we recorded asset impairment charges on certain products primarily sold in the UK, Germany and Spain in the amount of $7,400,000.

Gain on Litigation Settlement:  Litigation settlements contributed significantly to operating profit in 2006. The recoveries in 2006 included the settlement with the Republic of Serbia relating to the ownership and operations of a joint venture we formerly participated in known as Galenika of $34,000,000 of which $28,000,000 was received in 2006, and the settlement of litigation with the former Chief Executive Officer, Milan Panic relating to Ribapharm bonuses, for which we received $20,000,000 and recorded a gain from litigation of $17,550,000 in 2006.

Restructuring Charges and Asset Impairments:  In 2006 we incurred $138,181,000 in restructuring charges relating to severance charges, contract cancellations, and asset impairments. In 2005 we made the decision to dispose of a manufacturing plant in China which resulted in an asset impairment charge of $2,322,000. In 2005 we also recorded net gains of approximately $1,800,000 resulting from the sale of the manufacturing plants in the U.S., Argentina and Mexico.

Acquired In-Process Research and Development (IPR&D):  We did not incur IPR&D charges in 2006. In 2005, we expensed $126,399,000 as IPR&D in connection with the acquisition of Xcel. The amounts expensed as IPR&D represent our estimate of fair value of purchased in-process technology for projects that, as of the acquisition dates, had not yet reached technological feasibility and had no alternative future use.

We estimated the fair value of the IPR&D in connection with the acquisition of Xcel based on the use of a discounted cash flow model (including an estimate of future sales at an average gross margin of 80%). For each

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project, the estimated after-tax cash flows (using a tax rate of 35%) were probability weighted to take account of the stage of completion and risks surrounding the successful development and commercialization. The assumed tax rate is our estimate of the effective statutory tax rate for an acquisition of similar types of assets. The cash flows were discounted to a present value using a discount rate of 18%, which represents our risk adjusted after tax weighted average cost of capital for each product. We estimated we would incur future research and development costs of approximately $50,000,000 to complete the retigabine IPR&D project.

Other Income, Net, Including Translation and Exchange:  Other income, net, including translation and exchange was income of $1,152,000 for the year ended December 31, 2006 compared with a loss of $6,358,000 in 2005. In both 2006 and 2005 the amounts represent primarily the effects of translation gains and losses in Europe and Latin America. Translation and exchange gains are primarily related to U.S. Dollar denominated assets and liabilities at our foreign currency denominated subsidiaries.

Interest Expense and Income:  Interest expense increased $3,400,000 during the year ended December 31, 2006 compared to 2005, due to higher interest rates associated with our variable rate debt. Interest income decreased $559,000 during the year ended December 31, 2006 compared to 2005 due primarily to lower cash balances.

Income Taxes:  Despite reporting losses from continuing operations, we recorded tax expense of $34,824,000 in 2006 and $55,073,000 in 2005. This occurred primarily because no tax benefits are recorded for the U.S. operating losses. In 2006, the effective rate was also affected by the pre-tax losses resulting from restructuring in Puerto Rico of $37,223,000 for which no tax benefit was recorded. The valuation allowance also has the effect of deferring certain amounts that would normally impact the effective tax rate. In addition, the 2005 Xcel IPR&D charge of $126,399,000 was not deductible for tax purposes, resulting in higher effective tax rates for the year. Tax expense in 2005 was also impacted by a charge of $27,368,000 resulting from an Internal Revenue Service examination of our U.S. tax returns for the years 1997 to 2001 and taxes imposed on the repatriation of foreign earnings of $4,500,000.

In 2006 and 2005 we recorded valuation allowances against the deferred tax assets associated with the U.S. tax benefits we will receive as income tax losses are offset against U.S. taxable income in future years. The reserve was recorded since we cannot be certain that sufficient U.S. taxable income will be generated to utilize the tax benefits before they expire. As of December 31, 2006 the valuation allowance against deferred tax assets totaled $161,713,000. The valuation allowance also has the effect of deferring certain amounts that would normally impact the effective rate.

Loss from Discontinued Operations:  Loss from discontinued operations was $751,000 in 2006 compared to $49,566,000 for the year ended December 31, 2005. The loss in 2006 primarily related to our Infergen operations. In 2006, the loss related to the Infergen operations was offset in part by the reduction in an environmental reserve for the discontinued biomedical facility. The losses in 2005 primarily relate to the charge for acquired in-process research and development related to the Infergen acquisition of $47,200,000.

Liquidity and Capital Resources

Cash and marketable securities totaled $361,487,000 at December 31, 2007 compared to $335,746,000 at December 31, 2006. Working capital (excluding assets held for sale and discontinued operations) was $522,764,000 at December 31, 2007 compared to $464,909,000 at December 31, 2006. The increase in working capital of $57,855,000 was primarily attributable to cash generated from operations and the reduction in income tax liabilities and accrued liabilities, offset in part by the reductions in accounts receivable and inventories.

Cash provided by operating activities in continuing operations is expected to be our primary source of funds for operations in 2008. During the year ended December 31, 2007, cash provided by operating activities in continuing operations totaled $121,870,000, compared with $127,053,000 in 2006. The cash provided by operating activities in continuing operations for 2007 included receipt of $19,200,000 related to the pradefovir licensing payment from Schering-Plough and $6,000,000 from the Republic of Serbia. The cash provided by operating activities in continuing operations for 2006 included receipt of $28,000,000 from the Republic of Serbia. The sale of $13,818,000 of inventory in the Basel, Switzerland and Puerto Rico manufacturing plant sales reduced cash provided by operating activities in 2007, as the cash received for this inventory has been reported in cash flows from investing activities.

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Cash used in investing activities in continuing operations was $34,207,000 for the year ended December 31, 2007, compared with cash used in investing activities in continuing operations of $34,101,000 in 2006. In 2007, cash used in investing activities consisted primarily of the purchase of investments of $72,518,000, the purchase of product rights for $36,184,000 and capital expenditures of $32,222,000, offset in part by proceeds from the sale of assets of $38,633,000 proceeds from investments of $36,633,000 and proceeds from sale of businesses of $31,451,000. In 2006 cash used in investing activities in continuing operations consisted of $40,968,000 for capital expenditures and $4,568,000 for the acquisition of product rights, offset in part by proceeds from sale of businesses of $10,022,000.

Cash flows used in financing activities in continuing operations was $93,147,000 in the year ended December 31, 2007, compared with $7,885,000 in 2006 and primarily consisted of the repurchase of our common stock for $99,557,000 and payments on long-term debt and notes payable of $10,884,000, offset in part by proceeds from stock option exercises and employee stock purchases of $15,288,000. In 2006, cash flows used in financing activities in continuing operations was $7,885,000 and consisted primarily of $21,552,000 in dividends paid on common stock and $6,563,000 of payments on long-term debt, offset in part by $17,389,000 in proceeds from stock option exercises and employee stock purchases.

In January 2004, we entered into an interest rate swap agreement with respect to $150,000,000 principal amount of our 7.0% Senior Notes due 2011. The interest rate on the swap is variable at six-month LIBOR plus 2.41%. The effect of this transaction was to initially lower our effective interest rate by exchanging fixed rate payments for floating rate payments. On a prospective basis, the effective rate will float and correlate to the variable interest earned on our cash held. At December 31, 2007 the effective rate on the $150,000,000 of debt under the swap agreement was 7.01%. We have collateral requirements on the interest rate swap agreement. The amount of collateral varies monthly depending on the fair value of the underlying swap contracts. As of December 31, 2007, we have collateral of $5,050,000 included in marketable securities and other assets related to this instrument.

We believe that our existing cash and cash equivalents and funds generated from operations will be sufficient to meet our operating requirements at least through December 31, 2008, and to provide cash needed to fund capital expenditures and our clinical development program. We may seek additional debt financing or issue additional equity securities to finance future acquisitions or for other purposes. We fund our cash requirements primarily from cash provided by our operating activities. Our sources of liquidity are our cash and cash equivalent balances and our cash flow from operations.

We did not declare and did not pay dividends in 2007. We declared and paid cash dividends of $0.0775 per share for the first and second quarters of 2006. We also paid cash dividends of $0.0775 per share in the first quarter of 2006 for the dividend declared in the fourth quarter of 2005. There are significant contractual limitations on our ability to pay future dividends under the terms of the indenture governing our 7% senior notes due 2011.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2007, and the effect such obligations are expected to have on our liquidity and cash flow in future periods:

			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(Amounts in thousands)
Long-term debt obligations:
7.0% Senior Notes due 2011	$	300,716	$	—	$	—	$	300,716	$	—
3.0% Convertible Subordinated
Notes due 2010		240,000		—		240,000		—		—
4.0% Convertible Subordinated
Notes due 2013		240,000		—		—		—		240,000
Interest payments		163,200		37,800		75,600		40,200		9,600
Lease obligations		57,758		9,164		16,561		11,577		20,456
Total cash obligations	$	1,001,674	$	46,964	$	332,161	$	352,493	$	270,056

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We have no material commitments for purchases of property, plant and equipment.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2007, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $69,365,000 of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 6 of the consolidated financial statements for a discussion on income taxes.

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques except for operating leases disclosed in our table contained in the “Contractual Obligations” section above. Our 3% and 4% Notes include conversion features that are considered as off-balance sheet arrangements under SEC requirements.

Products in Development

Late Stage Development of New Chemical Entities

Retigabine:  We are developing retigabine as an adjunctive treatment for partial-onset seizures in patients with epilepsy. Retigabine stabilizes hyper-excited neurons primarily by opening neuronal potassium channels. The results of the key Phase II study indicate that the compound is potentially efficacious with a demonstrated reduction in monthly seizure rates of 23% to 35% as adjunctive therapy in patients with partial seizures. Response rates in the two higher doses were statistically significant compared to placebo (p<0.001).

Following a Special Protocol Assessment by the FDA, two Phase III trials of retigabine were initiated in 2005. One Phase III trial (RESTORE 1; RESTORE stands for Retigabine Efficacy and Safety Trial for partial Onset Epilepsy) was conducted at approximately 50 sites, mainly in the Americas (U.S., Central/South America); the second Phase III trial (RESTORE 2) is being conducted at approximately 70 sites, mainly in Europe. The first patient in the RESTORE 1 trial was enrolled in September 2005. We completed the enrollment of patients in RESTORE 1 and RESTORE 2 in July 2007 and November 2007, respectively.

We announced clinical data results for RESTORE 1 on February 12, 2008. RESTORE 1 evaluated the 1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo in patients taking stable doses of one to three additional anti-epileptic drugs (AEDs). Retigabine demonstrated statistically significant results on the primary efficacy endpoints important for regulatory review by both the US Food and Drug Administration (FDA) and the European Medicines Evaluation Agency (EMEA).

The intent-to-treat (ITT) median reduction in 28-day total partial seizure frequency from baseline to the end of the double-blind period (the FDA primary efficacy endpoint), was 44.3% (n=151) and 17.5% (n=150) for the retigabine arm and placebo arm of the trial, respectively. The responder rate, defined as ≥ 50% reduction in 28-day total partial seizure frequency during maintenance (the dual primary efficacy endpoint required for the EMEA submission) was 55.5% (n=119) and 22.6% (n=137) for the retigabine arm and the placebo arm of the trial, respectively.

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RETIGABINE: SUMMARY RESTORE 1 EFFICACY DATA

	RTG 1200 mg			Placebo
Median reduction in 28-day total partial seizure frequency* (ITT)		44.3	%†		17.5	%
		n=151			n=150
Median reduction in 28-day total partial seizure frequency during Maintenance Phase		54.5	%†		18.9	%
		n=119			n=137
Responder Rate‡ (ITT)		45.0	%†		18.0	%
		n=151			n=150
Responder Rate during Maintenance Phase**		55.5	%†		22.6	%
		n=119			n=137

	ITT population defined as all subjects taking at least 1 dose of study medication and having at least 1 efficacy assessment
*	FDA endpoint
**	Endpoint per EU Committee for Human Medicinal Products (CHMP)
†	p <0.0001 compared to placebo
‡	Responder Rate defined as ≥ 50% reduction in 28-day total partial seizure frequency

During RESTORE 1, 26.8% of patients in the retigabine arm and 8.6% of patients in the placebo arm withdrew due to adverse events. The most common side effects associated with retigabine in RESTORE 1 included dizziness, somnolence, fatigue, confusion, dysarthria (a speech disorder), ataxia (loss of muscle coordination), blurred vision, tremor, and nausea. We plan to present comprehensive efficacy and safety results from RESTORE 1 at upcoming scientific meetings in the United States and the European Union.

Assuming successful completion of the Phase III trials and regulatory approval, we hope to launch retigabine in the first market by the end of 2009. We may seek a partner to share the investment and risk in the development of retigabine. External research and development expenses for retigabine were $43,650,000 and $27,391,000 in 2007 and 2006, respectively. A number of standard supportive Phase I trials necessary for successful registration of retigabine started in 2007. In March 2007 we initiated development of a modified release formulation of retigabine. In addition, in April 2007 we filed an IND for the treatment of post herpetic neuralgia, a common form of neuropathic pain. Following review, the FDA has allowed Valeant to proceed with this Phase IIa clinical trial and we began enrolling patients in November 2007.

Our rights to retigabine are subject to the Asset Purchase Agreement between Meda Pharma Gmbh & Co KG (as successor to Viatris Gmbh & Co KG) and Xcel Pharmaceuticals, Inc. by which Xcel acquired the rights to retigabine. The provisions of that agreement require milestone payments of $8,000,000 upon acceptance of filing of the NDA and $6,000,000 upon approval of the NDA. We expect to expense the NDA filing milestone in 2008. In addition, earn out payments are due to Meda on sales of retigabine. Depending on geographic market and the presence or absence of competitive products containing retigabine, royalty rates vary but are in all cases less than 10%. In the event that we enter into arrangements whereby we receive milestone or other payments from partners regarding retigabine, we may also be liable to Meda for as much as $5,250,000.

Taribavirin:  Taribavirin (formerly referred to as Viramidine) is a nucleoside (guanosine) analog that is converted into ribavirin by adenosine deaminase in the liver and intestine. We are developing taribavirin in oral form for the treatment of hepatitis C.

Preclinical studies indicated that taribavirin, a prodrug of ribavirin, has antiviral and immunological activities (properties) similar to ribavirin. In 2006, we reported the results of two pivotal Phase III trials for taribavirin. The VISER (Viramidine Safety and Efficacy Versus Ribavirin) trials included two co-primary endpoints: one for safety (superiority to ribavirin in incidence of anemia) and one for efficacy (non-inferiority to ribavirin in sustained viral response, SVR). The results of the VISER trials met the safety endpoint but did not meet the efficacy endpoint.

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The studies demonstrated that 38-40% of patients treated with taribavirin achieved SVR and that the drug has a safety advantage over ribavirin, but that it was not comparable to ribavirin in efficacy at the doses studied. We believe that the results of the studies were significantly impacted by the dosing methodology which employed a fixed dose of taribavirin for all patients and a variable dose of ribavirin based on a patient’s weight. Our analysis of the study results leads us to believe that the dosage of taribavirin, like ribavirin, likely needs to be based on a patient’s weight to achieve efficacy equal or superior to that of ribavirin. Additionally we think that higher doses of taribavirin than those studied in the VISER program may be necessary to achieve our efficacy objectives.

Based on our analysis, we initiated a Phase IIb study to evaluate the efficacy of taribavirin at 20, 25 and 30 mg/kg in combination with pegylated interferon, as compared with ribavirin in combination with pegylated interferon. In the VISER program, taribavirin was administered in a fixed dose of 600 mg BID (approximately equivalent to 13-18 mg/kg).

On March 17, 2008 we reported the results of the 12-week analysis of the taribavirin Phase IIb study. The Phase IIb study is a U.S. multi-center, randomized, parallel, open-label study in 278 treatment naïve, genotype 1 patients evaluating taribavirin at 20 mg/kg, 25 mg/kg, and 30 mg/kg per day in combination with pegylated interferon alfa-2b. The control group is being administered weight-based dosed ribavirin (800/1,000/1,200/1,400 mg daily) and pegylated interferon alfa-2b. Overall treatment duration will be 48-weeks with a post-treatment follow-up period of 24-weeks. The primary endpoints for this study are viral load reduction at treatment week 12 and anemia rates throughout the study. The 12-week early viral response (EVR) data from the Phase IIb study showed comparable reductions in viral load for weight-based doses of taribavirin and ribavirin. The anemia rate was statistically significantly lower for patients receiving taribavirin in the 20mg/kg and 25mg/kg arms versus the ribavirin control arm.

Key Efficacy and Safety Data Table at Treatment Week 12 (ITT Population)

	TBV 20mg/kg	TBV 25 mg/kg	TBV 30 mg/kg	RBV 800-1400mg
	n = 67	n = 70	n = 68	n = 70
Responders*	43 (64.2)%	40 (57.1)%	37 (54.4)%	36 (51.4)%
Undetectable**	28 (41.8)%	29 (41.4)%	17 (25.0)%	22 (31.4)%
Anemia rate***	6 (9.0)%	5 (7.1)%	10 (14.7)%	17 (24.3)%

*	HCV RNA undetectable (less than 100 copies per mL) or ≥ 2-log decrease in viral load using the NGI SuperQuant Assay
**	HCV RNA less than 100 copies per mL
***	Anemia rate defined as percentage of patients with Hgb level < 10 g/dL. p=0.022 for 20mg/kg and p=0.009 for 25mg/kg.

The most common adverse events were fatigue, nausea, flu-like symptoms, headache and diarrhea. The incidence rates among treatment arms were generally comparable except with respect to diarrhea, where diarrhea was approximately twice as common in taribavirin patients as ribavirin patients. However, the diarrhea was not treatment limiting for taribavirin or ribavirin patients.

The timeline and path to regulatory approval of taribavirin remains uncertain at this time. We are using the Phase IIb data to explore the options for the continued role of taribavirin in our portfolio, including consideration of partnering opportunities. Our external research and development expenses for taribavirin were $8,115,000 and $16,133,000 for 2007 and 2006, respectively

Other Development Activities

Diastat Intranasal:  Our product Diastat AcuDial is a gel formulation of diazepam administered rectally in the management of selected, refractory patients with epilepsy, who require intermittent use of diazepam to control bouts of increased seizure activity. In order to improve the convenience of this product, we have initiated the development of an intranasal delivery of diazepam. Our external research and development expenses for Diastat Intranasal were $1,425,000 and $70,000 for 2007 and 2006, respectively.

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Foreign Operations

Approximately 74% of our revenues from continuing operations, which includes royalties, for the years ended December 31, 2007 and 2006 were generated from operations or otherwise earned outside the United States. All of our foreign operations are subject to risks inherent in conducting business abroad. See Item 1A. Risk Factors.

Inflation and Changing Prices

We experience the effects of inflation through increases in the costs of labor, services and raw materials. We are subject to price control restriction on our pharmaceutical products in the majority of countries in which we operate. While we attempt to raise selling prices in anticipation of inflation, we operate in some markets which have price controls that may limit our ability to raise prices in a timely fashion.

Recent Accounting Pronouncements

FIN 48.  In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 applies to all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return. FIN 48 prescribes a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon final settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold for purposes of applying FIN 48. Therefore, if it can be established that the only uncertainty is when an item is taken on a tax return, such positions have satisfied the recognition step for purposes of FIN 48 and uncertainty related to timing should be assessed as part of measurement. FIN 48 also requires that the amount of interest expense and income to be recognized related to uncertain tax positions be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with FIN 48 and the amount previously taken or expected to be taken in a tax return.

FIN 48 became effective for Valeant as of January 1, 2007. The change in net assets as a result of applying this pronouncement was recorded as a change in accounting principle with the cumulative effect of the change required to be treated as an adjustment to the opening balance of retained earnings. As a result of the adoption of FIN 48, we recognized an increase of $1,560,000 to the beginning balance of accumulated deficit on the balance sheet.

SFAS No. 157.  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not change the requirements to apply fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability. SFAS No. 157 will be effective for Valeant as of January 1, 2008 and we are currently assessing the impact that SFAS No. 157 may have on our financial statements.

SFAS No. 158.  In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which became effective for Valeant as of December 31, 2006. SFAS No. 158 requires companies to recognize the over-funded or under-funded status of defined benefit postretirement plans as an asset or liability on the balance sheet. Valeant does not have defined benefit postretirement plans for its U.S. operations but does maintain such plans for certain of its foreign operations. SFAS No. 158 also prescribes that, by December 31, 2008, the measurement date of a plan to be the date of its year-end balance sheet, which is the measurement date Valeant already uses for most its plans. The impact of adopting FAS 158 resulted in an increase in pension related assets and an increase in other comprehensive income of approximately $643,000. In addition, we have disclosed additional information about certain effects on net periodic benefit cost for 2008.

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SFAS 159.  In February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, (SFAS 159) which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate any disclosure requirements included in other accounting standards. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.

SAB No. 108.  In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108) regarding the quantification of financial statement misstatements. SAB No. 108 requires a “dual approach” for quantifications of errors using both a method that focuses on the income statement impact, including the cumulative effect of prior years’ misstatements, and a method that focuses on the period-end balance sheet. SAB No. 108 became effective for Valeant as of January 1, 2007. The adoption of this standard did not have a material impact on Valeant.

In June 2007, the FASB ratified the consensus reached by the EITF in EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods and services that will be used in future research and development activities be deferred and capitalized until the related service is performed or the goods are delivered. EITF 07-3 is effective for fiscal years beginning after December 15, 2007. We do not expect the adoption of EITF 07-3 to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Among other requirements, SFAS 141(R) expands the definition of a business combination, requires acquisitions to be accounted for at fair value, and requires transaction costs and restructuring charges to be expensed. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. When implemented, SFAS 141(R) will require that any reduction to a valuation allowance established in purchase accounting will be accounted for as a reduction to income tax expense, rather than a reduction of goodwill.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements.

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

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Critical Accounting Estimates

The consolidated financial statements appearing elsewhere in this document have been prepared in conformity with accounting principles generally recognized in the United States. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to product returns, rebates, collectibility of receivables, inventories, intangible assets, income taxes and contingencies and litigation. The actual results could differ materially from those estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenues from product sales when title and risk of ownership transfers to the customer. Revenues are recorded net of provisions for rebates, discounts and returns, which are estimated and recorded at the time of sale. Allowances for future returns of products sold to our direct and indirect customers, who include wholesalers, retail pharmacies and hospitals, are calculated as a percent of sales based on historical return percentages taking into account additional available information on competitive products and contract changes. Sales revenue in certain countries is recognized on a consignment or cash basis.

Our product sales are subject to a variety of deductions, primarily representing rebates and discounts to government agencies, wholesalers and managed care organizations. These deductions represent estimates of the related obligations and, as such, judgment is required when estimating the impact of these sales deductions on revenues for a reporting period.

In the United States we record provisions for Medicaid, Medicare and contract rebates based upon our actual experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly and adjusted if necessary to ensure that the historical trends are as current as practicable. We adjust the ratio to better match our current experience or our expected future experience, as appropriate. In developing this ratio, we consider current contract terms, such as changes in formulary status and discount rates. If our ratio is not indicative of future experience, our results could be materially affected.

Outside of the United States, the majority of our rebates are contractual or legislatively mandated and our estimates are based on actual invoiced sales within each period; both of these elements help to reduce the risk of variations in the estimation process. Some European countries base their rebates on the government’s unbudgeted pharmaceutical spending and we use an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third party information that helps us to monitor the adequacy of these accruals. If our estimates are not indicative of actual unbudgeted spending, our results could be materially affected.

Historically, our adjustments to actual have not been material; on a quarterly basis, they generally have been less than 5% of product sales. Sales revenue in certain countries is recognized on a consignment or cash basis. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with U.S. Medicaid and contract rebates are most at-risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement. This interval can range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.

We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs.

We use third-party data to estimate the level of product inventories, expiration dating, and product demand at our major wholesalers. Actual results could be materially different from our estimates, resulting in future adjustments to revenue. For the years ended December 31, 2007 and 2006, the provision for sales returns was

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less than 3% of product sales. We conduct a review of the current methodology and assess the adequacy of the allowance for returns on a quarterly basis, adjusting for changes in assumptions, historical results and business practices, as necessary.

We earn ribavirin royalties as a result of sales of products by Schering-Plough. Ribavirin royalties are earned at the time the products subject to the royalty are sold by the third party and are reduced by an estimate for discounts and rebates that will be paid in subsequent periods for those products sold during the current period. We rely on a limited amount of financial information provided by Schering-Plough to estimate the amounts due to us under the royalty agreements.

Sales Incentives

In the U.S. market, our current practice is to offer sales incentives primarily in connection with launches of new products or changes of existing products where demand has not yet been established. We monitor and restrict sales in the U.S. market in order to limit wholesaler purchases in excess of their ordinary-course-of-business inventory levels. We operate Inventory Management Agreements (IMAs) with major wholesalers in the United States. However, specific events such as the case of sales incentives described above or seasonal demand (e.g. antivirals during an outbreak) may justify larger purchases by wholesalers. We may offer sales incentives primarily in international markets, where typically no right of return exists except for goods damaged in transit, product recalls or replacement of existing products due to packaging or labeling changes. Our revenue recognition policy on these types of purchases and on incentives in international markets is consistent with the policies described above.

Impairment of Property, Plant and Equipment

We evaluate the carrying value of property, plant and equipment when conditions indicate a potential impairment. We determine whether there has been impairment by comparing the anticipated undiscounted future cash flows expected to be generated by the property, plant and equipment with its carrying value. If the undiscounted cash flows are less than the carrying value, the amount of the asset impairment, if any, is then determined by comparing the carrying value of the property, plant and equipment with its fair value. Fair value is generally based on a discounted cash flows analysis, independent appraisals or preliminary offers from prospective buyers.

Valuation of Intangible Assets

We periodically review intangible assets for impairment using an undiscounted net cash flows approach. We determine whether there has been impairment by comparing the anticipated undiscounted future operating cash flows of the products associated with the intangible asset with its carrying value. If the undiscounted operating cash flows are less than the carrying value, the amount of the asset impairment, if any, will be determined by comparing the value of each intangible asset with its fair value. Fair value is generally based on a discounted cash flows analysis.

We use a discounted cash flow model to value intangible assets acquired and for the assessment of impairment. The discounted cash flow model requires assumptions about the timing and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset.

The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s judgment. Any changes in key assumptions about our businesses and their prospects, or changes in market conditions, could result in an impairment charge. Some of the more significant estimates and assumptions inherent in the intangible asset impairment estimation process include: the timing and amount of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal or regulatory factors.

In 2007, we capitalized purchased software from a third party vendor and software development costs incurred under the provisions of SOP 98-1, Accounting for the Cost of Computer Software Developed or Obtained for

54

Internal Use. Capitalized costs include only (1) external direct costs of materials and services incurred in developing or obtaining internal use software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote substantial time to the internal-use software project, and (3) interest costs incurred, while developing internal-use software. Amortization began in certain countries when portions of the project were completed, were ready for their intended purpose and were placed in service. Training and computer software maintenance costs are expensed as incurred. Software development costs are being amortized using the straight-line method over the expected life of the product which is estimated to be five to seven years depending on when it is placed in service.

Purchase Price Allocation Including Acquired In-Process Research and Development

The purchase prices for the Xcel, Amarin and Ribapharm acquisitions were allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Such a valuation requires significant estimates and assumptions, including but not limited to: determining the timing and expected costs to complete the in-process projects; projecting regulatory approvals; estimating future cash flows from product sales resulting from completed products and in-process projects; and developing appropriate discount rates and probability rates by project. We believe the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions, however, these assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

We value IPR&D acquired in a business combination based on an approach consistent with the AICPA Practice Aid, Assets Acquired in Business Combinations to be Used in Research and Development Activities: A Focus in Software, Electronic Devices and Pharmaceutical Industries. The amounts expensed as acquired IPR&D represents an estimate of the fair value of purchased in-process technology for projects that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. The data used to determine fair value requires significant judgment. The estimated fair values were based on our use of a discounted cash flow model. For each project, the estimated after-tax cash flows were probability weighted to take account of the stage of completion and the risks surrounding the successful development and commercialization. The assumed tax rates are our estimate of the effective tax rates that will apply to the expected cash flows. These cash flows were then discounted to a present value using discount rates between 15% and 20%. The discount rates represent our weighted average cost of capital for each of the acquisitions. In addition, solely for the purposes of estimating the fair value of IPR&D projects acquired, we estimated that future clinical development costs would be incurred in the amount of $50,000,000 for retigabine (acquired from Xcel). See Note 4 of notes to consolidated financial statements for a discussion of acquisitions.

The major risks and uncertainties associated with the timely and successful completion of these projects include the uncertainty of our ability to confirm the safety and efficacy of product candidates based on the data from clinical trials and of obtaining necessary regulatory approvals. In addition, no assurance can be given that the underlying assumptions we used to forecast the cash flows or the timely and successful completion of these projects will materialize as estimated. For these reasons, among others, actual results may vary significantly from the estimated results.

Contingencies

We are exposed to contingencies in the ordinary course of business, such as legal proceedings and business-related claims, which range from product and environmental liabilities to tax matters. In accordance with SFAS No. 5, Accounting for Contingencies, we record accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The estimates are refined each accounting period, as additional information is known. See Note 16 of notes to consolidated financial statements for a discussion of contingencies.

Income Taxes

Our income tax returns are subject to audit in various jurisdictions. Existing and future audits by, or other disputes with, tax authorities may not be resolved favorably for us and could have a material adverse effect on our

55

reported effective tax rate and after-tax cash flows. We record liabilities based on the recognition and measurement criteria of FIN 48, which involves significant management judgment. New laws and new interpretations of laws and rulings by tax authorities may affect the liability for uncertain tax positions. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from our estimates. To the extent that our estimates differ from amounts eventually assessed and paid our income and cash flows can be materially and adversely affected.

The Internal Revenue Service has completed an examination of our U.S. income tax returns for the years 2002 through 2004 and has proposed adjustments to our tax liabilities for those years, plus penalties. While we have written a formal protest in response to the proposed adjustments, additional unrecognized tax benefits of $69,897,000 ($41,751,000 of which are temporary differences) were identified related to issues arising during this examination. Of these amounts, $19,005,000 was recorded as an addition to non-current liability for uncertain tax positions. Deferred tax assets were increased by $16,403,000, and $2,602,000 was recorded as income tax expense. All other unrecognized tax benefit amounts arose in years in which we generated a tax loss and are offset by the valuation allowance.

We assess whether it is more likely than not that we will realize the tax benefits associated with our deferred tax assets and establish a valuation allowance for assets that are not expected to result in a realized tax benefit. A significant amount of judgment is used in this process, including preparation of forecasts of future taxable income and evaluation of tax planning initiatives. If we revise these forecasts or determine that certain planning events will not occur, an adjustment to the valuation allowance will be made to tax expense in the period such determination is made. We have increased the valuation allowance significantly since 2004 to recognize the uncertainty of realizing the benefits of the U.S. net operating losses and research credits.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

Our business and financial results are affected by fluctuations in world financial markets. We evaluate our exposure to such risks on an ongoing basis, and seek ways to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity and cost. We do not hold any significant amount of market risk sensitive instruments whose value is subject to market price risk. Our significant foreign currency exposure relates to the Euro, the Polish Zloty, the Mexican Peso, the Swiss Franc and the Canadian Dollar. During 2007, we entered into various forward currency contracts to a) reduce our exposure to forecasted 2008 Euro and Japanese Yen denominated royalty revenue, b) hedge our net investment in our Polish and Brazilian subsidiaries, c) reduce our exposure to various currencies as a result of repetitive short-term intercompany investments and obligations and d) reduce our Canadian subsidiary’s exposure to its investment in U.S. Dollar denominated securities. In sum, as a result of these activities, an unrealized gain of $1,206,000 was recorded in the financial statements at December 31, 2007. In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and are not discussed or quantified in the following analysis. At December 31, 2007, the fair value of our financial instruments was (in thousands):

	Derivatives and Hedging Activity
	December 31, 2007					December 31, 2006
			Gain/(Loss)					Gain/(Loss)
			Amount Held in					Amount Held in
	Notional		OCI or			Notional		OCI or
Description	Amount		Recognized			Amount		Recognized
Undesignated Hedges	$	78,595	$	834		$	14,605	$	(71	)
Net Investment Hedges	$	35,000	$	(441	)	$	74,205	$	963
Cash Flow Hedges	$	17,788	$	323		$	10,479	$	(106	)
Fair Value Hedges	$	26,000	$	490		$	0	$	0
Interest Rate Swap	$	150,000	$	715		$	150,000	$	(4,318	)

We currently do not hold financial instruments for trading or speculative purposes. Our financial assets are not subject to significant interest rate risk due to their short duration. At December 31, 2007 we had $181,000 of foreign denominated variable rate debt that would subject us to both interest rate and currency risks. In 2004 we entered into

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an interest rate swap agreement with respect to $150,000,000 principal amount of our 7.0% Senior Notes. A 100 basis-point increase in interest rates affecting our financial instruments would not have had a material effect on our 2006 pretax earnings. In addition, we had $780,000,000 of fixed rate debt as of December 31, 2007 that requires U.S. Dollar repayment. To the extent that we require, as a source of debt repayment, earnings and cash flow from some of our units located in foreign countries, we are subject to risk of changes in the value of certain currencies relative to the U.S. Dollar.

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Item 8.   Financial Statements and Supplementary Data

Quarterly Financial Data

Following is a summary of quarterly financial data for the years ended December 31, 2007 and 2006 (in thousands, except per share data):

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(Restated)			(Restated)			(Restated)
	(Unaudited)
2007
Revenues(a)	$	204,403		$	220,542		$	207,054		$	240,223
Gross profit on product sales (excluding amortization)		121,032			143,973			135,112			152,559
Income (loss) from continuing operations(b)		13,523			21,880			(2,277	)		(7,072	)
Loss from discontinued operations, net(c)		(4,200	)		(4,966	)		(9,813	)		(13,261	)
Net income (loss)		9,323			16,914			(12,090	)		(20,333	)
Basic earnings (loss) per share from continuing operations	$	0.14		$	0.23		$	(0.02	)	$	(0.08	)
Discontinued operations, net of tax		(0.04	)		(0.05	)		(0.11	)		(0.14	)
Basic earnings (loss) per share — net income (loss)	$	0.10		$	0.18		$	(0.13	)	$	(0.22	)
Diluted earnings (loss) per share from continuing operations	$	0.14		$	0.23		$	(0.02	)	$	(0.08	)
Discontinued operations, net of tax		(0.04	)		(0.05	)		(0.11	)		(0.14	)
Diluted earnings (loss) per share — net income (loss)	$	0.10		$	0.18		$	(0.13	)	$	(0.22	)

	First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter
	(Restated)			(Restated)			(Restated)		(Restated)
	(Unaudited)
2006
Revenues	$	185,545		$	218,820		$	210,230	$	248,209
Gross profit on product sales (excluding amortization)		113,041			135,120			131,936		163,324
Income (loss) from continuing operations(d)(e)		(7,415	)		(40,949	)		7,533		(15,986	)
Income (loss) from discontinued operations, net(c)		1,269			(1,176	)		6,004		(6,848	)
Net Income (loss)		(6,146	)		(42,125	)		13,537		(22,834	)
Basic earnings (loss) per share from continuing operations	$	(0.08	)	$	(0.44	)	$	0.08	$	(0.17	)
Discontinued operations, net of tax		0.01			(0.01	)		0.07		(0.07	)
Basic earnings (loss) per share — net income (loss)	$	(0.07	)	$	(0.45	)	$	0.15	$	(0.24	)
Diluted earnings (loss) per share from continuing operations	$	(0.08	)	$	(0.44	)	$	0.08	$	(0.17	)
Discontinued operations, net of tax		0.01			(0.01	)		0.06		(0.07	)
Diluted earnings (loss) per share — net income (loss)	$	(0.07	)	$	(0.45	)	$	0.14	$	(0.24	)

(a)

In the first quarter of 2007, we recorded alliance revenue of $36,470,000, of which $19,200,000 related to the licensing of pradefovir to Schering-Plough.

(b)

In the first and second quarters of 2007, we incurred expenses of $7,238,000 and $6,337,000, respectively, relating to our restructuring program. These restructuring charges included employee severance costs (493 employees), professional service fees, contract cancellation costs, accumulated foreign currency translation adjustments, and asset impairment charges. We did not incur a restructuring expense in the third quarter of 2007. In the fourth quarter of 2007 we incurred expenses related to the 2008 Strategic Review, comprising

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	$957,000 for executive severances, $4,676,000 for professional service expenses for management consultants assisting with the Strategic Review, and the $3,968,000 contract termination and transaction costs associated with the sale of our Asia businesses.
(c)	Discontinued operations in 2007 and 2006 related primarily to our Infergen operations. In the third quarter of 2006, income from discontinued operations benefited from the release of $5,648,000 of a reserve for environmental remediation
(d)	In the first quarter of 2006, we recorded a gain on litigation settlement from litigation with the Republic of Serbia of $34,000,000 relating to the ownership and operations of a joint venture we formerly participated in known as Galenika. In the third quarter of 2006, we recorded a gain on litigation settlement from litigation with a former Chief Executive Officer, Milan Panic of $17,550,000 relating to Ribapharm bonuses.
(e)	In the first, second, third and fourth quarters of 2006, we incurred expenses of $26,466,000, $53,083,000, $17,138,000 and $41,494,000 respectively relating to a restructuring program undertaken to reduce costs and accelerate earnings growth, focused on our research and development and manufacturing operations, but also reducing selling, general and administrative expenses. The expense included employee severance costs (259 employees), abandoned software and other capital assets, asset impairment charges relating to writing down fixed assets at two manufacturing facilities and our former headquarters facility to fair value and contract cancellation and other cash charges.

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Below is a summary of the summarized quarterly financial data as reported and as affected by the restatement for our fiscal quarters ended March 31, June 30, September 30, 2007 and 2006, and December 31, 2006 (in thousands, except for per share data):

	For the Three Months Ended
	March 31,			June 30,			September 30,
	2007			2007			2007
	(Unaudited)
Revenues
As previously reported	$	204,392		$	221,654		$	208,623
As restated		204,403			220,542			207,054
Gross profit on product sales (excluding amortization)
As previously reported		119,094			143,471			135,512
As restated		121,032			143,973			135,112
Income (loss) from continuing operations
As previously reported		12,768			21,416			(2,206	)
As restated		13,523			21,880			(2,277	)
Net income (loss)
As previously reported		8,568			16,450			(12,019	)
As restated		9,323			16,914			(12,090	)
Basic earnings (loss) per share from continuing operations
As previously reported		0.13			0.23			(0.02	)
As restated		0.14			0.23			(0.02	)
Basic loss per share from discontinued operations
As previously reported		(0.04	)		(0.06	)		(0.11	)
As restated		(0.04	)		(0.05	)		(0.11	)
Basic earnings (loss) per share — net income (loss)
As previously reported		0.09			0.17			(0.13	)
As restated		0.10			0.18			(0.13	)
Diluted earnings (loss) per share from continuing operations
As previously reported		0.13			0.22			(0.02	)
As restated		0.14			0.23			(0.02	)
Diluted loss per share from discontinued operations
As previously reported		(0.04	)		(0.05	)		(0.11	)
As restated		(0.04	)		(0.05	)		(0.11	)
Diluted earnings (loss) per share — net income (loss)
As previously reported		0.09			0.17			(0.13	)
As restated		0.10			0.18			(0.13	)

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	For the Three Months Ended
	March 31,			June 30,			September 30,		December 31,
	2006			2006			2006		2006
	(Unaudited)
Revenues
As previously reported	$	185,786		$	219,083		$	210,840	$	248,812
As restated		185,545			218,820			210,230		248,209
Gross profit on product sales (excluding amortization)
As previously reported		113,282			135,383			132,546		163,927
As restated		113,041			135,120			131,936		163,324
Income (loss) from continuing operations
As previously reported		(7,240	)		(41,343	)		7,704		(14,935	)
As restated		(7,415	)		(40,949	)		7,533		(15,986	)
Net income (loss)
As previously reported		(5,971	)		(42,519	)		13,708		(21,783	)
As restated		(6,146	)		(42,125	)		13,537		(22,834	)
Basic earnings (loss) per share from continuing operations
As previously reported		(0.08	)		(0.45	)		0.08		(0.16	)
As restated		(0.08	)		(0.44	)		0.08		(0.17	)
Basic earnings (loss) per share from discontinued operations
As previously reported		0.02			(0.01	)		0.07		(0.07	)
As restated		0.01			(0.01	)		0.07		(0.07	)
Basic earnings (loss) per share — net income (loss)
As previously reported		(0.06	)		(0.46	)		0.15		(0.23	)
As restated		(0.07	)		(0.45	)		0.15		(0.24	)
Diluted earnings (loss) per share from continuing operations
As previously reported		(0.08	)		(0.45	)		0.08		(0.16	)
As restated		(0.08	)		(0.44	)		0.08		(0.17	)
Diluted earnings (loss) per share from discontinued operations
As previously reported		0.02			(0.01	)		0.06		(0.07	)
As restated		0.01			(0.01	)		0.06		(0.07	)
Diluted earnings (loss) per share — net income (loss)
As previously reported		(0.06	)		(0.46	)		0.14		(0.23	)
As restated		(0.07	)		(0.45	)		0.14		(0.24	)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

December 31, 2007

	Page
Report of Independent Registered Public Accounting Firm		63
Financial statements:
Consolidated balance sheets at December 31, 2007 and 2006 (as restated)		65
For the years ended December 31, 2007, 2006 and 2005:
Consolidated statements of operations (as restated)		66
Consolidated statements of stockholders’ equity (as restated)		67
Consolidated statements of cash flows (as restated)		68
Notes to consolidated financial statements (as restated)		69
Financial statement schedule for the years ended December 31, 2007, 2006 and 2005:
II. Valuation and qualifying accounts		116

The other schedules have not been submitted because they are not applicable.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Valeant Pharmaceuticals International:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Valeant Pharmaceuticals International and its subsidiaries at December 31, 2007 and 2006 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the complement of personnel in the Company’s foreign locations existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2007 consolidated financial statements and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements and the financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007 and the manner in which it accounts for stock-based compensation in 2006.

As disclosed in Note 2 to the consolidated financial statements, the Company has restated its 2006 and 2005 consolidated financial statements.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable

63

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/  PricewaterhouseCoopers LLP

Orange County, California

March 17, 2008

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VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED BALANCE SHEETS

December 31,

	2007			2006
				(Restated)(1)
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	309,365		$	325,376
Marketable securities		52,122			10,370
Accounts receivable, net		191,796			227,151
Inventories, net		115,177			130,747
Assets held for sale and assets of discontinued operations		66,247			124,821
Prepaid expenses and other current assets		21,713			16,398
Current deferred tax assets, net		11,819			8,550
Income taxes		26,433			2,526
Total current assets		794,672			845,939
Property, plant and equipment, net		116,376			94,121
Deferred tax assets, net		65,950			21,218
Goodwill		80,346			75,346
Intangible assets, net		401,575			414,915
Other assets		35,343			53,927
Assets of discontinued operations		—			226
Total non-current assets		699,590			659,753
	$	1,494,262		$	1,505,692
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Trade payables	$	49,203		$	60,621
Accrued liabilities		139,754			146,705
Notes payable and current portion of long-term debt		1,655			9,237
Income taxes		10,239			39,646
Liabilities held for sale and liabilities of discontinued operations		4,194			—
Current liabilities for uncertain tax positions		616			—
Total current liabilities		205,661			256,209
Long-term debt, less current portion		782,552			778,196
Deferred tax liabilities, net		5,337			3,705
Liabilities for uncertain tax positions		68,749			—
Other liabilities		17,860			24,506
Liabilities of discontinued operations		—			12,686
Total non-current liabilities		874,498			819,093
Total liabilities		1,080,159			1,075,302
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value; 200,000 shares authorized; 89,286 (December 31, 2007) and 94,416 (December 31, 2006) shares outstanding (after deducting shares in treasury of 7,585 as of December 31, 2007 and 1,094 as of December 31, 2006)		893			944
Additional capital		1,192,559			1,263,318
Accumulated deficit		(859,559	)		(851,812	)
Accumulated other comprehensive income		80,210			17,940
Total stockholders’ equity		414,103			430,390
	$	1,494,262		$	1,505,692

(1) See Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements.

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

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VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,

	2007			2006			2005
				(Restated)(1)			(Restated)(1)
	(In thousands except per share data)
Revenues:
Product sales	$	785,770		$	781,562		$	731,869
Alliance revenue (including ribavirin royalties)		86,452			81,242			91,646
Total revenues		872,222			862,804			823,515
Costs and expenses:
Cost of goods sold (excluding amortization)		233,094			238,141			222,358
Selling expenses		259,324			244,757			232,316
General and administrative expenses		111,721			114,583			108,508
Research and development costs		98,025			105,442			114,100
Acquired in-process research and development		—			—			126,399
Gain on litigation settlements		—			(51,550	)		—
Restructuring charges and asset impairment		23,176			138,181			1,253
Amortization expense		71,567			65,276			68,832
Total costs and expenses		796,907			854,830			873,766
Income (loss) from operations		75,315			7,974			(50,251	)
Other income (loss), net including translation and exchange		1,060			1,152			(6,358	)
Interest income		17,792			12,610			13,169
Interest expense		(42,878	)		(43,726	)		(40,326	)
Income (loss) from continuing operations before income taxes and minority interest		51,289			(21,990	)		(83,766	)
Provision for income taxes		25,233			34,824			55,073
Minority interest, net		2			3			287
Income (loss) from continuing operations		26,054			(56,817	)		(139,126	)
Loss from discontinued operations		(32,240	)		(751	)		(49,566	)
Net loss	$	(6,186	)	$	(57,568	)	$	(188,692	)
Basic income (loss) per share:
Income (loss) from continuing operations	$	0.28		$	(0.61	)	$	(1.52	)
Loss from discontinued operations		(0.35	)		(0.01	)		(0.54	)
Basic loss per share:	$	(0.07	)	$	(0.62	)	$	(2.06	)
Diluted income (loss) per share:
Income (loss) from continuing operations	$	0.28		$	(0.61	)	$	(1.52	)
Loss from discontinued operations		(0.35	)		(0.01	)		(0.54	)
Diluted loss per share:	$	(0.07	)	$	(0.62	)	$	(2.06	)
Shares used in per share computations — basic		93,029			93,387			91,797
Shares used in per share computation — diluted		93,976			93,387			91,797
Dividends paid per share of common stock	$	—		$	0.24		$	0.31
Dividends declared per share of common stock	$	—		$	0.24		$	0.23

(1) See Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements.

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

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VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2007, 2006, and 2005

													Accumulated
													Other
	Common Stock						Additional			Accumulated			Comprehensive
	Shares			Amount			Capital			Deficit			Income (Loss)			Total
	(As restated)(1)
	(In thousands)
Balance at December 31, 2004, as previously reported		84,219		$	842		$	1,024,776		$	(560,722	)	$	4,711		$	469,607
Effect of restatement (See Note 2)		—			—			—			(1,793	)		3,724			1,931
Balance at December 31, 2004		84,219			842			1,024,776			(562,515	)		8,435			471,538
Comprehensive income:
Net loss		—			—			—			(188,692	)		—			(188,692	)
Foreign currency translation adjustments		—			—			—			—			(30,383	)		(30,383	)
Unrealized gain on marketable equity securities and other		—			—			—			—			4,363			4,363
Total comprehensive loss																	(214,712	)
Exercise of stock options		161			2			2,146			—			—			2,148
Employee stock purchase plan		100			1			1,643			—			—			1,644
Common stock offering		8,280			83			188,947			—			—			189,030
Stock option compensation expense					—			1,192			—			—			1,192
Stock compensation		—			—			2,139			—			—			2,139
Tax effect on stock options exercised, net					—			4,064			—			—			4,064
Dividends		—			—			—			(21,485	)		—			(21,485	)
Balance at December 31, 2005		92,760			928			1,224,907			(772,692	)		(17,585	)		435,558
Comprehensive income:
Net loss		—			—			—			(57,568	)		—			(57,568	)
Foreign currency translation adjustments		—			—			—			—			39,692			39,692
Unrealized loss on marketable equity securities and other		—			—			—			—			(4,810	)		(4,810	)
Total comprehensive loss																	(22,686	)
Net effect of adopting new accounting standard for pensions		—			—			—			—			643			643
Exercise of stock options		1,592			16			16,435			—			—			16,451
Employee stock purchase plan		64			—			938			—			—			938
Stock compensation expense		—			—			20,848			—			—			20,848
Stock compensation in discontinued operations		—			—			190			—			—			190
Dividends		—			—			—			(21,552	)		—			(21,552	)
Balance at December 31, 2006		94,416			944			1,263,318			(851,812	)		17,940			430,390
Comprehensive income:
Net loss		—			—			—			(6,186	)		—			(6,186	)
Foreign currency translation adjustments		—			—			—			—			60,117			60,117
Pension liability adjustment														(4,471	)		(4,471	)
Unrealized gain on marketable equity securities and other		—			—									6,624			6,624
Total comprehensive income																	56,084
Exercise of stock options		1,283			12			14,417			—			—			14,429
Employee stock purchase plan		78			2			857			—			—			859
Share repurchase		(6,491	)		(65	)		(99,492	)		—			—			(99,557	)
Stock compensation expense		—			—			13,220			—			—			13,220
Stock compensation in discontinued operations		—			—			239			—			—			239
Net effect of adopting new accounting standard for uncertain tax positions		—			—			—			(1,561	)		—			(1,561	)
Balance at December 31, 2007		89,286		$	893		$	1,192,559		$	(859,559	)	$	80,210		$	414,103

(1) See Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements.

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

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VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

	2007			2006			2005
				(Restated)(1)			(Restated)(1)
	(In thousands)
Cash flows from operating activities:
Net loss	$	(6,186	)	$	(57,568	)	$	(188,692	)
Loss from discontinued operations		(32,240	)		(751	)		(49,566	)
Income (loss) from continuing operations		26,054			(56,817	)		(139,126	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities in continuing operations:
Depreciation and amortization		87,968			85,593			97,351
Provision for losses on accounts receivable and inventory		18,274			14,071			10,744
Stock compensation expense		13,220			20,848			3,331
Translation and exchange (gains) losses, net		(1,060	)		(1,152	)		6,358
Impairment charges and other non-cash items		6,744			122,171			2,969
Acquired in-process research and development		—			—			126,399
Deferred income taxes		21,404			3,356			(33,913	)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable		31,801			(27,778	)		(14,774	)
Inventories		(732	)		(5,598	)		(30,141	)
Prepaid expenses and other assets		(8,517	)		(2,232	)		(3,762	)
Trade payables and accrued liabilities		(17,996	)		(13,051	)		8,132
Income taxes		(50,769	)		(11,991	)		27,559
Other liabilities		(4,521	)		(367	)		3,918
Cash flow from operating activities in continuing operations		121,870			127,053			65,045
Cash flow from operating activities in discontinued operations		(29,349	)		(1,992	)		(587	)
Net cash provided by operating activities		92,521			125,061			64,458
Cash flows from investing activities:
Capital expenditures		(32,222	)		(40,968	)		(45,525	)
Proceeds from sale of assets		38,633			10,022			7,252
Proceeds from sale of businesses		31,451			—			—
Proceeds from investments		36,633			27,913			533,307
Purchase of investments		(72,518	)		(26,500	)		(305,300	)
Acquisition of businesses, license rights and product lines		(36,184	)		(4,568	)		(293,090	)
Cash flow from investing activities in continuing operations		(34,207	)		(34,101	)		(103,356	)
Cash flow from investing activities in discontinued operations		(5,135	)		1,948			(114,994	)
Net cash provided by (used in) investing activities		(39,342	)		(32,153	)		(218,350	)
Cash flows from financing activities:
Payments on long-term debt and notes payable		(10,884	)		(6,563	)		(1,114	)
Proceeds capitalized lease financing, long-term debt, and notes payable		2,006			2,841			802
Stock option exercises and employee stock purchases		15,288			17,389			3,792
Proceeds from sales of stock (purchase of treasury stock)		(99,557	)		—			189,030
Dividends paid		—			(21,552	)		(27,966	)
Cash flow from financing activities in continuing operations		(93,147	)		(7,885	)		164,544
Cash flow from financing activities in discontinued operations		(170	)		1,075			—
Net cash used in financing activities		(93,317	)		(6,810	)		164,544
Effect of exchange rate changes on cash and cash equivalents		23,924			15,140			(8,383	)
Net increase (decrease) in cash and cash equivalents		(16,214	)		101,238			2,269
Cash and cash equivalents at beginning of period		325,579			224,341			222,072
Cash and cash equivalents at end of period		309,365			325,579			224,341
Cash and cash equivalents classified as part of discontinued operations		—			(203	)		(47	)
Cash and cash equivalents of continuing operations	$	309,365		$	325,376		$	224,294

(1) See Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements.

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

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VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Summary of Significant Accounting Policies

In these financial statements and this annual report, “we”, “us” and “our” refers to Valeant Pharmaceuticals International (“Valeant”) and its subsidiaries.

Organization:  We are an international specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Additionally, we generate royalty revenues from the sale of ribavirin by Schering-Plough Ltd. (“Schering-Plough”).

Principles of Consolidation:  The accompanying consolidated financial statements include the accounts of Valeant, its wholly owned subsidiaries and its majority-owned subsidiary in Poland. Minority interest in results of operations of consolidated subsidiaries represents the minority stockholders’ share of the income or loss of these consolidated subsidiaries. All significant intercompany account balances and transactions have been eliminated.

Cash and Cash Equivalents:  Cash equivalents include short-term commercial paper, time deposits and money market funds which, at the time of purchase, have maturities of three months or less. For purposes of the consolidated statements of cash flows, we consider highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The carrying amount of these assets approximates fair value due to the short-term maturity of these investments.

Marketable Securities:  Investments in marketable securities are categorized as either being expected to be held-to-maturity or available-for-sale. Marketable securities are generally categorized as held-to-maturity and are thus carried at amortized cost, because we have both the intent and the ability to hold these investments until they mature. Investments categorized as available-for-sale are marked to market based on quoted market values of the securities, with the resulting adjustments, net of deferred taxes, reported as a component of other comprehensive income (loss) in stockholders’ equity until realized. As of December 31, 2007 and 2006, the fair value of our marketable securities approximated cost.

Allowance for Doubtful Accounts:  We evaluate the collectibility of accounts receivable on a regular basis. The allowance is based upon various factors including the financial condition and payment history of major customers, an overall review of collections experience on other accounts and economic factors or events expected to affect our future collections experience.

Inventories:  Inventories, which include material, direct labor and factory overhead, are stated at the lower of cost or market. Cost is determined on a first-in, first-out (“FIFO”) basis. We evaluate the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand, the price we expect to obtain for products in their respective markets compared with historical cost and the remaining shelf life of goods on hand.

Property, Plant and Equipment:  Property, plant and equipment are stated at cost. We primarily use the straight-line method for depreciating property, plant and equipment over their estimated useful lives. Buildings are depreciated up to 40 years, machinery and equipment are depreciated from 3-11 years, furniture and fixtures from 5-10 years and leasehold improvements and capital leases are amortized over their useful lives, limited to the life of the related lease. We follow the policy of capitalizing expenditures that materially increase the lives of the related assets and charge maintenance and repairs to expense. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and the resulting gain or loss is included in income. From time to time, if there is an indication of possible asset impairment, we evaluate the carrying value of property, plant and equipment. We determine if there has been asset impairment by comparing the anticipated undiscounted future cash flows expected to be generated by the property, plant and equipment with its carrying value. If the undiscounted cash flows are less than the carrying value, the amount of the asset impairment, if any, is determined by comparing the carrying value of the property, plant and equipment with its fair value. Fair value is generally based on a discounted cash flows analysis, appraisals or preliminary offers from prospective buyers. In the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

years ended December 31, 2007, 2006 and 2005, we recorded asset impairment charges of $2,439,000, $97,344,000 and $2,322,000 respectively, on certain of our fixed assets. See Note 3.

Capitalized Software Costs:  In 2007, we capitalized purchased software from a third party vendor and software development costs incurred under the provisions of SOP 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use. Capitalized costs include only (1) external direct costs of materials and services incurred in developing or obtaining internal use software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote substantial time to the internal-use software project, and (3) interest costs incurred, while developing internal-use software. Amortization began in certain countries when portions of the project were completed, were ready for their intended purpose and were placed in service. Training and computer software maintenance costs are expensed as incurred. Software development costs are being amortized using the straight-line method over the expected life of the product which is estimated to be five to seven years depending on when it is placed in service.

Acquired In-Process Research and Development:  We charge the costs associated with acquired in-process research and development (“IPR&D”) to expense. These amounts represent an estimate of the fair value of purchased in-process technology for projects that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. The estimation of fair value requires significant judgment. Differences in those judgments would have the impact of changing our allocation of purchase price to goodwill, which is an intangible asset that is not amortized. We incurred an IPR&D expense of $126,399,000 related to the acquisition of Xcel in 2005.

The major risks and uncertainties associated with the timely and successful completion of IPR&D projects consist of the ability to confirm the safety and efficacy of the technology based on the data from clinical trials and obtaining necessary regulatory approvals. In addition, no assurance can be given that the underlying assumptions used to forecast the cash flows or the timely and successful completion of such projects will materialize as estimated. For these reasons, among others, actual results may vary significantly from the estimated results.

Goodwill and Intangible Assets:  Our intangible assets comprise product marketing rights, related patents and trademarks for pharmaceutical products, and rights under the ribavirin license agreements. The product rights primarily relate to either 1) mature pharmaceutical products without patent protection, or 2) patented products. The mature products display a stable and consistent revenue stream over a relatively long period of time. The patented products generally have steady growth rates up until the point of patent expiration when revenues decline due to the introduction of generic competition. We amortize the mature products using the straight-line method over the estimated remaining life of the product (ranging from 5-19 years for current products) where the pattern of revenues is generally flat over the remaining life. We amortize patented products using the straight-line method over the remaining life of the patent because the revenues are generally growing until patent expiration.

We amortize the license rights for ribavirin on an accelerated basis because of the significant decline in royalties which started in 2003 upon the expiration of a U.S. patent; amortization is scheduled to be completed in June 2008.

Intangible assets are tested for impairment when possible indicators of impairment are identified. We recorded asset impairment charges for intangible assets of $310,000, $1,075,000, and $7,417,000 in 2007, 2006, and 2005 respectively. The charges in 2007 and 2006 related to two products in Spain. The charge in 2005 primarily related to products sold in the United Kingdom, Germany and Spain which experienced revenue declines in recent years. We evaluate intangible assets by comparing the carrying value of each intangible asset to the related undiscounted future cash flows. If the carrying value exceeds the undiscounted cash flows, the amount of the asset impairment is determined by comparing the carrying value to its fair value, as determined using discounted cash flows analysis.

Revenue Recognition:  We recognize revenues from product sales when title and risk of ownership transfers to the customer and all required elements as described in SEC Staff Accounting Bulletin No. 104 have been addressed. We record revenues net of provisions for rebates, discounts and returns, which are established at the time

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of sale. We calculate allowances for future returns of products sold to our direct and indirect customers, who include wholesalers, retail pharmacies and hospitals, as a percent of sales based on our historical return percentages and taking into account additional available information on competitive products and contract changes. Where we do not have data sharing agreements, we use third-party data to estimate the level of product inventories, expiration dating, and product demand at our major wholesalers and in retail pharmacies. We have data sharing agreements with the three largest wholesalers in the US. Based upon this information, adjustments are made to the allowance accrual if deemed necessary. Actual results could be materially different from our estimates, resulting in future adjustments to revenue. We review our current methodology and assess the adequacy of the allowance for returns on a quarterly basis, adjusting for changes in assumptions, historical results and business practices, as necessary.

In the United States, we record provisions for Medicaid, Medicare and contract rebates based upon our actual experience ratio of rebates paid and actual prescriptions during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly and compared to industry data and claims made by states and other contract organizations to ensure that the historical trends are representative of current experience and that our accruals are adequate.

Our reserve for rebates, product returns and allowances is included in accrued liabilities and was $54,846,000 and $51,324,000 at December 31, 2007 and 2006, respectively.

We earn ribavirin royalties as a result of our license of product rights and technologies to Schering-Plough. Ribavirin royalties are earned at the time the products subject to the royalty are sold by Schering-Plough. We rely on a limited amount of financial information provided by Schering-Plough to estimate the amounts due to us under the royalty agreements.

Foreign Currency Translation:  The assets and liabilities of our foreign operations are translated at end of period exchange rates. Revenues and expenses are translated at the weighted average exchange rates prevailing during the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into United States Dollars are accumulated as a separate component of stockholders’ equity.

Income Taxes:  Income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”). SFAS No. 109 requires that we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established, when necessary, to reduce our deferred tax assets. In estimating the future tax consequences of any transaction, we consider all expected future events under presently existing tax laws and rates.

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

Comprehensive Income:  We have adopted the provisions of SFAS No. 130, Reporting Comprehensive Income. Accumulated other comprehensive income as of December 31, 2007 consisted of accumulated foreign currency adjustments of $85,772,000, unrealized loss on marketable equity securities and other of ($1,735,000) and net pension liabilities of ($3,827,000).

Per Share Information:  We compute basic earnings per share by dividing income or loss available to common stockholders by the weighted-average number of common shares outstanding. We compute diluted earnings per share by adjusting the weighted-average number of common shares outstanding to reflect the effect of potentially dilutive securities including options, warrants, and convertible debt or preferred stock. We adjust income

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

available to common stockholders in these computations to reflect any changes in income or loss that would result from the issuance of the dilutive common shares.

Stock-Based Compensation:  We adopted SFAS No. 123(R), Share Based Payment (“SFAS 123(R)”) on January 1, 2006. SFAS 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123(R) requires companies to recognize compensation expense for the fair value of all share based incentive programs including employee stock options and our employee stock purchase plan. We adopted SFAS 123(R) on the modified prospective basis prescribed therein and have not restated prior period financial statements for this new accounting method.

Prior to the adoption of SFAS 123(R) in 2006, we followed APB 25 to account for employee stock options. Under APB 25, compensation expense was recognized in the amount of the intrinsic value of the option on the date of grant over the vesting period of the option. Intrinsic value is the amount that the exercise price of a stock option is less than the market price of the underlying stock. Prior to the adoption of SFAS 123(R) we also applied the disclosure provisions of SFAS 123 which illustrate, on a pro forma basis, the effect on our reported earnings as if we recorded stock compensation expense based on the fair value of stock options.

In order to estimate the fair value of stock options under the provisions of SFAS 123 and SFAS 123(R) we use the Black-Scholes option valuation model, which was developed for use in estimating the fair value of publicly traded options which, unlike employee stock options, have no vesting restrictions and are fully transferable. Option valuation models such as Black-Scholes require the input of subjective assumptions which can vary over time. Additional information about our stock incentive programs and the assumptions used in determining the fair value of stock options are contained in Note 15.

Stock compensation expense was $13,220,000, $20,848,000 and $3,331,000 in 2007, 2006 and 2005, respectively.

The following pro forma net loss and loss per share was determined as if we had accounted for employee stock options and stock issued under our employee stock plans under the fair value method prescribed by SFAS 123(R) in 2005. Since we have recorded valuation allowances for U.S. tax benefits, no tax benefits have been attributed to the additional compensation expense (in thousands, except per share amounts).

	2005
Net loss as reported (restated)	$	(188,692	)
Stock compensation expense recorded at intrinsic value for stock incentive plans		3,331
Stock compensation expense determined under fair value based method for stock incentive plans		(19,642	)
Pro forma net loss	$	(205,003	)
Net loss per share:
Basic and diluted — as reported	$	(2.06	)
Basic and diluted — pro forma	$	(2.23	)

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Pronouncements

FIN 48.  In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 applies to all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return. FIN 48 prescribes a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon final settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold for purposes of applying FIN 48. Therefore, if it can be established that the only uncertainty is when an item is taken on a tax return, such positions have satisfied the recognition step for purposes of FIN 48 and uncertainty related to timing should be assessed as part of measurement. FIN 48 also requires that the amount of interest expense and income to be recognized related to uncertain tax positions be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with FIN 48 and the amount previously taken or expected to be taken in a tax return.

FIN 48 became effective for Valeant as of January 1, 2007. The change in net assets as a result of applying this pronouncement was recorded as a change in accounting principle with the cumulative effect of the change required to be treated as an adjustment to the opening balance of retained earnings. As a result of the adoption of FIN 48, we recognized an increase of $1,561,000 to the beginning balance of accumulated deficit on the balance sheet.

SFAS No. 157.  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not change the requirements to apply fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability. SFAS No. 157 will be effective for Valeant as of January 1, 2008 and we are currently assessing the impact that SFAS No. 157 may have on our financial statements.

SFAS No. 158.  In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which became effective for Valeant as of December 31, 2006. SFAS No. 158 requires companies to recognize the over-funded or under-funded status of defined benefit postretirement plans as an asset or liability on the balance sheet. Valeant does not have defined benefit postretirement plans for its U.S. operations but does maintain such plans for certain of its foreign operations. SFAS No. 158 also prescribes that, by December 31, 2008, the measurement date of a plan to be the date of its year-end balance sheet, which is the measurement date Valeant already uses for most its plans. The impact of adopting FAS 158 resulted in an increase in pension related assets and an increase in other comprehensive income of approximately $643,000. In addition, we have disclosed additional information about certain effects on net periodic benefit cost for 2008.

SFAS 159.  In February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, (SFAS 159) which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate any disclosure requirements included in other accounting standards SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SAB No. 108.  In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108) regarding the quantification of financial statement misstatements. SAB No. 108 requires a “dual approach” for quantifications of errors using both a method that focuses on the income statement impact, including the cumulative effect of prior years’ misstatements, and a method that focuses on the period-end balance sheet. SAB No. 108 became effective for Valeant as of January 1, 2007. The adoption of this standard did not have a material impact on Valeant.

In June 2007, the FASB ratified the consensus reached by the EITF in EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods and services that will be used in future research and development activities be deferred and capitalized until the related service is performed or the goods are delivered. EITF 07-3 is effective for fiscal years beginning after December 15, 2007. We do not expect the adoption of EITF 07-3 to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Among other requirements, SFAS 141(R) expands the definition of a business combination, requires acquisitions to be accounted for at fair value, and requires transaction costs and restructuring charges to be expensed. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. When implemented, SFAS 141(R) will require that any reduction to a valuation allowance established in purchase accounting will be accounted for as a reduction to income tax expense, rather than a reduction of goodwill.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements.

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

2.   Restatement of Consolidated Financial Statements

During the preparation process for this annual report on Form 10-K, we concluded that certain errors identified subsequent to the filing of our annual report on Form 10-K for the year ended December 31, 2006 were material to certain prior periods, including the year ended December 31, 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The errors and the cumulative effect of the corrections as of December 31, 2006 are identified as follows and summarized in the table below:

i. Increase in reserves for anticipated product returns based on historical trends in Latin America, the cumulative effect of which as of December 31, 2006 is a reduction in revenue of $3,953,000 and certain other adjustments of $127,000;

ii. Decrease in revenues associated with sales to certain customers in Italy where preexisting rights of return became known in the fourth quarter of 2007, the cumulative effect of which as of December 31, 2006 is a reduction of revenues of $290,000;

iii. Changes in pension expense in UK, Netherlands, Switzerland and Germany resulting from incorrect application of Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, the cumulative effect of which as of December 31, 2006 is a decrease in general and administrative expenses of $519,000; and

iv. Reduction in cumulative income tax expense as of December 31, 2006 of $1,331,000 resulting from the income tax effects of the pre-tax adjustments described above. Additionally, income tax expense increased by $825,000 due to corrections of deferred taxes in certain foreign locations.

										Total
	Year Ended									Additional
	December 31,									Income
Income (Expense)	2006			2005			Prior Periods			(Expense)
	(In thousands)
Returns reserve in Latin America	$	(1,554	)	$	(371	)	$	(2,155	)	$	(4,080	)
Reversal of revenue in Italy		(290	)		—			—			(290	)
European pension accounting		1,401			(256	)		(626	)		519
Total impact before taxes		(443	)		(627	)		(2,781	)	$	(3,851	)
Tax effect on above		204			139			988		$	1,331
Other deferred tax items		(764	)		(61	)		—			(825	)
Total impact of restatement	$	(1,003	)	$	(549	)	$	(1,793	)	$	(3,345	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Below is a summary of the specific income statement accounts as previously reported and as affected by the restatement for the two years ended December 31, 2006 and 2005 (in thousands):

	2006			2005
Product sales
As previously reported	$	783,279		$	732,240
Adjustment		(1,717	)		(371	)
As restated	$	781,562		$	731,869
General and administrative expenses
As previously reported	$	115,857		$	108,252
Adjustment		(1,274	)		256
As restated	$	114,583		$	108,508
Income (loss) from operations, before interest, taxes and other items
As previously reported	$	8,417		$	(49,624	)
Adjustment		(443	)		(627	)
As restated	$	7,974		$	(50,251	)
Loss from continuing operations before income taxes and minority interest
As previously reported	$	(21,547	)	$	(83,139	)
Adjustment		(443	)		(627	)
As restated	$	(21,990	)	$	(83,766	)
Provision for income taxes
As previously reported	$	34,264		$	55,151
Adjustment		560			(78	)
As restated	$	34,824		$	55,073
Loss from continuing operations
As previously reported	$	(55,814	)	$	(138,577	)
Adjustment		(1,003	)		(549	)
As restated	$	(56,817	)	$	(139,126	)
Net loss
As previously reported	$	(56,565	)	$	(188,143	)
Adjustment		(1,003	)		(549	)
As restated	$	(57,568	)	$	(188,692	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Below is a summary of the earnings per share information as reported and as affected by the restatement for the years ended December 31, 2006 and 2005 (in thousands):

	2006			2005
Basic loss per share — as previously reported
From continuing operations	$	(0.60	)	$	(1.51	)
From discontinued operations		(0.01	)		(0.54	)
Net loss	$	(0.61	)	$	(2.05	)
Basic loss per share — adjustments
From continuing operations	$	(0.01	)	$	(0.01	)
From discontinued operations		—			—
Net loss	$	(0.01	)	$	(0.01	)
Basic loss per share — as restated
From continuing operations	$	(0.61	)	$	(1.52	)
From discontinued operations		(0.01	)		(0.54	)
Net loss	$	(0.62	)	$	(2.06	)
Diluted loss per share — as previously reported
From continuing operations	$	(0.60	)	$	(1.51	)
From discontinued operations		(0.01	)		(0.54	)
Net loss	$	(0.61	)	$	(2.05	)
Diluted loss per share — adjustments
From continuing operations	$	(0.01	)	$	(0.01	)
From discontinued operations		—			—
Net loss	$	(0.01	)	$	(0.01	)
Diluted loss per share — as restated
From continuing operations	$	(0.61	)	$	(1.52	)
From discontinued operations		(0.01	)		(0.54	)
Net loss	$	(0.62	)	$	(2.06	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Below is a summary of the specific balance sheet accounts as reported and as affected by the restatement and certain adjustments for changes in balance sheet classification as of December 31, 2006:

	2006
Cash and cash equivalents
As previously reported	$	326,002
Adjustment		(626	)
As restated	$	325,376
Marketable securities
As previously reported	$	9,743
Adjustment		627
As restated	$	10,370
Accounts receivable, net
As previously reported	$	227,452
Adjustment		(301	)
As restated	$	227,151
Current deferred tax assets, net
As previously reported	$	8,071
Adjustment		479
As restated	$	8,550
Deferred tax assets, net
As previously reported	$	21,514
Adjustment		(296	)
As restated	$	21,218
Other assets
As previously reported	$	53,555
Adjustment		372
As restated	$	53,927
Accrued liabilities
As previously reported	$	142,532
Adjustment		4,173
As restated	$	146,705
Income taxes
As previously reported	$	39,818
Adjustment		(172	)
As restated	$	39,646

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2006
Deferred tax liabilities, net
As previously reported	$	3,255
Adjustment		450
As restated	$	3,705
Other liabilities
As previously reported	$	18,182
Adjustment		6,324
As restated	$	24,506
Liabilities of discontinued operations
As previously reported	$	18,343
Adjustment		(5,657	)
As restated	$	12,686
Accumulated deficit
As previously reported	$	(848,467	)
Adjustment		(3,345	)
As restated	$	(851,812	)
Accumulated other comprehensive income
As previously reported	$	19,458
Adjustment		(1,518	)
As restated	$	17,940

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information on cash flow as set forth in our Consolidated Statement of Cash Flows for the years ended December 31, 2006 and 2005 (in thousands), presenting the impact of the restatement and certain adjustments for changes in balance sheet classification is as follows:

	2006									2005
	As									As
	Previously			2006			2006			Previously			2005			2005
	Reported			Adjustments			As Restated			Reported			Adjustments			As Restated
	(In thousands)
Cash flows from operating activities:
Net loss	$	(56,565	)	$	(1,003	)	$	(57,568	)	$	(188,143	)	$	(549	)	$	(188,692	)
Loss from discontinued operations		(751	)		—			(751	)		(49,566	)		—			(49,566	)
Income (loss) from continuing operations		(55,814	)		(1,003	)		(56,817	)		(138,577	)		(549	)		(139,126	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities in continuing operations:
Depreciation and amortization		85,593			—			85,593			97,351			—			97,351
Provision for losses on accounts receivable and inventory		14,071			—			14,071			10,744			—			10,744
Stock compensation expense		20,848			—			20,848			3,331			—			3,331
Translation and exchange (gains) losses, net		(1,152	)		—			(1,152	)		6,358			—			6,358
Impairment charges and other non-cash items		122,171			—			122,171			2,969			—			2,969
Acquired in-process research and development		—			—			—			126,399			—			126,399
Deferred income taxes		2,625			731			3,356			(34,204	)		291			(33,913	)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(28,068	)		290			(27,778	)		(14,774	)		—			(14,774	)
Inventories		(5,598	)		—			(5,598	)		(30,141	)		—			(30,141	)
Prepaid expenses and other assets		(858	)		(1,374	)		(2,232	)		(3,545	)		(217	)		(3,762	)
Trade payables and accrued liabilities		(14,733	)		1,682			(13,051	)		7,838			294			8,132
Income taxes		(11,820	)		(171	)		(11,991	)		27,559			—			27,559
Other liabilities		(117	)		(250	)		(367	)		3,807			111			3,918
Cash flow from operating activities in continuing operations		127,148			(95	)		127,053			65,115			(70	)		65,045
Cash flow from operating activities in discontinued operations		(2,087	)		95			(1,992	)		(657	)		70			(587	)
Net cash provided by operating activities		125,061			—			125,061			64,458			—			64,458
Cash flows from investing activities:
Capital expenditures		(40,968	)		—			(40,968	)		(45,525	)		—			(45,525	)
Proceeds from sale of assets		10,022			—			10,022			7,252			—			7,252
Proceeds from sale of businesses		—			—			—			—			—			—
Proceeds from investments		27,913			—			27,913			533,307			—			533,307
Purchase of investments		(26,500	)		—			(26,500	)		(305,300	)		—			(305,300	)
Acquisition of businesses, license rights and product lines		(4,568	)		—			(4,568	)		(293,090	)		—			(293,090	)
Cash flow from investing activities in continuing operations		(34,101	)		—			(34,101	)		(103,356	)		—			(103,356	)
Cash flow from investing activities in discontinued operations		1,948			—			1,948			(114,994	)		—			(114,994	)
Net cash used in investing activities		(32,153	)		—			(32,153	)		(218,350	)		—			(218,350	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2006									2005
	As									As
	Previously			2006			2006			Previously			2005			2005
	Reported			Adjustments			As Restated			Reported			Adjustments			As Restated
	(In thousands)
Cash flows from financing activities:
Payments on long-term debt and notes payable		(6,563	)		—			(6,563	)		(1,114	)		—			(1,114	)
Proceeds capitalized lease financing, long-term debt, and notes payable		2,841			—			2,841			802			—			802
Stock option exercises and employee stock purchases		17,389			—			17,389			192,822			—			192,822
Proceeds from sales of stock (purchase of treasury stock)		—			—			—			—			—			—
Dividends paid		(21,552	)		—			(21,552	)		(27,966	)		—			(27,966	)
Cash flow from financing activities in continuing operations		(7,885	)		—			(7,885	)		164,544			—			164,544
Cash flow from financing activities in discontinued operations		1,075			—			1,075			—			—			—
Net cash provided by (used in) financing activities		(6,810	)		—			(6,810	)		164,544			—			164,544
Effect of exchange rate changes on cash and cash equivalents		15,204			(64	)		15,140			(8,468	)		85			(8,383	)
Net increase (decrease) in cash and cash equivalents		101,302			(64	)		101,238			2,184			85			2,269
Cash and cash equivalents at beginning of period		224,903			(562	)		224,341			222,719			(647	)		222,072
Cash and cash equivalents at end of period		326,205			(626	)		325,579			224,903			(562	)		224,341
Cash and cash equivalents classified as part of discontinued operations		(203	)		—			(203	)		(47	)		—			(47	)
Cash and cash equivalents of continuing operations	$	326,002		$	(626	)	$	325,376		$	224,856		$	(562	)	$	224,294

The restatement of our consolidated financial statements also included certain corrections in our accounting for pensions, as described in Note. 11.

3.   Restructuring

2007 Restructuring Charges

In 2007 we recorded a restructuring charge of $23,176,000 that consisted of $13,575,000 for the 2006 Restructuring and $9,601,000 for the restructuring program that will be announced in connection with the 2008 Strategic Review.

In December 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd. (“Invida”) to sell Invida certain Valeant subsidiaries and product rights in Asia, in a transaction that includes certain of our subsidiaries, branch offices, and commercial rights in Singapore, the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia, and Macau. This transaction also includes certain product rights in Japan. We closed this transaction on March 3, 2008. The assets sold to Invida have been classified as “held for sale” in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as of December 2007.

2008 Strategic Review and Restructuring: In October 2007, our board of directors initiated a strategic review of our business direction, geographic operations, product portfolio, growth opportunities, and acquisition strategy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

This strategic review, which we refer to as the “2008 Strategic Review,” is still underway as of date of this filing and we expect to describe it in an announcement in late March 2008. We expect the 2008 Strategic Review to lead to significant changes in our business and will include a restructuring program. The charges taken in 2007 for this 2008 restructuring include $957,000 for executive severances, $4,676,000 for professional service expenses, and the $3,968,000 contract termination and transaction costs associated with the sale of our Asia businesses to Invida.

March 2006 — June 2007 Restructuring Charges

On April 3, 2006, we announced a restructuring program to reduce costs and accelerate earnings growth. The 2006 Restructuring was primarily focused on our research and development and manufacturing operations. The objective of this restructuring program as it related to research and development activities was to focus our efforts and expenditures on two late stage projects currently in development. In December 2006 we sold our HIV and cancer development programs and certain discovery and pre-clinical assets to Ardea Biosciences, Inc. (“Ardea”), with an option for us to reacquire rights outside of the United States and Canada to commercialize the compound being developed in the HIV program upon Ardea’s completion of Phase IIb trials. In March 2007, we sold our former headquarters building in Costa Mesa, California, where our former research laboratories were located, for net proceeds of $36,758,000.

The objective of the 2006 Restructuring as it related to manufacturing was to further rationalize our manufacturing operations to reflect the regional nature of our existing products and further reduce our excess capacity after considering the delay in the development of taribavirin. In December 2006, we transferred our former factories in Basel, Switzerland and Puerto Rico to a “held for sale” classification in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In June 2007, we sold these manufacturing facilities and the related inventories to Legacy Pharmaceuticals International for aggregate proceeds of $29,500,000, of which $12,000,000 was received as consideration for inventories sold to Legacy Pharmaceuticals International and $17,500,000 was received as consideration for the manufacturing facilities. The transaction also included transition payment obligations of $6,000,000 to be paid by Valeant to Legacy Pharmaceuticals International over a 24-month period as well as capital expenditure obligations of $650,000 to be incurred by us. The sale of these manufacturing facilities to Legacy Pharmaceuticals International in June 2007 completed the 2006 Restructuring.

The charges in the 2006 Restructuring included impairment charges resulting from the sale of our former headquarters facility, discovery and pre-clinical operations equipment, and our former manufacturing facilities in Puerto Rico and Basel, Switzerland. The restructuring included the reduction of approximately 850 employees, the majority of whom work in the two manufacturing facilities sold to Legacy Pharmaceuticals International. As of December 31, 2007, employee severance costs in this restructuring program have been recorded for approximately 490 employees and no severance payments have been recorded for the remaining employees who transferred to Legacy Pharmaceuticals International.

The 2006 Restructuring also rationalized selling, general and administrative expenses primarily through consolidation of the management functions in fewer administrative groups to achieve greater economies of scale. Management and administrative responsibilities for our regional operations in Australia, Africa and Asia, which had previously been managed as a separate business unit, were combined in 2006 with those of other regions.

We recorded a restructuring provision for the 2006 Restructuring of $13,575,000 in 2007, compared with $138,181,000 for 2006. Severance charges recorded as part of this restructuring program were $22,127,000.

Abandoned software and other capital assets included an expense of $20,453,000 in 2006 relating to an Enterprise Resource Planning (ERP) project, which was discontinued in March 2006. It also included $632,000 of cash-related charges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restructuring Charge Details

	Year Ended		Year Ended
	December 31,		December 31,		Cumulative
	2007		2006		Total Incurred
	(In thousands)
2006 Restructuring Program
Employee severances	$	5,130	$	16,997	$	22,127
Contract cancellation and other cash costs		3,115		1,662		4,777
Subtotal: cash charges		8,245		18,659		26,904
Abandoned software and other capital assets		—		22,178		22,178
Write-off of accumulated foreign currency translation adjustments		2,891		—		2,891
Impairment of manufacturing and research facilities		2,439		97,344		99,783
Subtotal: non-cash charges		5,330		119,522		124,852
Total:	$	13,575	$	138,181	$	151,756

	Year Ended
	December 31,
	2007
2008 Restructuring Program
Employee severances	$	957
Contract cancellation and other cash costs		8,644
Subtotal: cash charges		9,601
Subtotal: non-cash charges		—
Total:	$	9,601

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reconciliation of Cash Restructuring Payments with Restructuring Accrual

Cash-related charges in the above table relate to severance payments and other costs which have been either paid with cash expenditures or have been accrued and will be paid with cash in future quarters. The $3,979,000 restructuring accrual for the 2006 Restructuring, accrued as of December 31, 2007, relates to ongoing contractual contractual payments to Legacy Pharmaceuticals International relating to the sale of our former manufacturing sites in Basel, Switzerland and Puerto Rico. These payment obligations last until June 30, 2009. A summary of accruals and expenditures of restructuring costs which will be paid in cash is as follows (in thousands):

2006 Restructuring: Reconciliation of Cash Payments and Accruals
Opening balance, commencement of restructuring	$	—
Charges to earnings		19,291
Cash paid		(14,075	)
Restructuring accrual, December 31, 2006		5,216
Charges to earnings		8,245
Transition and capital expenditure payment obligations		6,813
Cash paid		(16,295	)
Restructuring accrual, December 31, 2007	$	3,979
2008 Restructuring: Reconciliation of Cash Payments and Accruals
Opening balance, commencement of restructuring	$	—
Charges to earnings		9,601
Cash paid		(1,080	)
Restructuring accrual, December 31, 2007	$	8,521

Pre- 2006 Activities

During 2003, we approved restructuring plans to establish a global manufacturing and supply chain network of five manufacturing sites, and dispose of or close ten of our manufacturing sites (the “Manufacturing Restructuring Plan”). In 2005 we modified the Manufacturing Restructuring Plan to include the disposition of the manufacturing site in China and recorded an asset impairment reserve of $3,602,000 for this facility and one in Poland. Also, in 2005 we sold a plant in the United States, two plants in Argentina and one plant in Mexico and recorded a net gain of $2,349,000 on these sales. In 2006 we completed the sale of a manufacturing facility in Poland and recorded a loss of $635,000 on the sale which was recorded as a restructuring charge in 2006.

4.   Acquisitions

2007 Transactions

In 2007, we acquired product rights in the United States, Europe, and Argentina for aggregate consideration of $40,803,000, of which $36,184,000 was cash consideration. In the United States, we acquired a paid-up license to Kinetin and Zeatin, the active ingredients in the Kinerase product line, for cash consideration of $21,000,000 and other consideration of $4,170,000. In Europe we acquired the rights to Nabilone, the product we currently market as Cesamet in Canada and the United States, for $13,582,000. We acquired the rights to certain products in Poland, Argentina and Spain for $1,602,000 in cash consideration and $449,000 in other consideration.

2006 Transactions

In 2006 we acquired rights to new product lines in Poland and the UK. In Poland we acquired the rights to a number of branded generic products for nominal cash consideration. In the UK we acquired exclusive rights to distribute certain dermatological skin care products from Intendis AG, including Finacea, Skinoren, Scheriproct,

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and Ultrabase. We also purchased additional rights to Melleril in Latin America and additional rights to Zelapar in Canada and Mexico. Aggregate consideration for these transactions was $4,568,000 in 2006.

2005 Transactions

Melleril and Acurenal:  During the third quarter of 2005, we acquired product rights to Melleril in Brazil from Novartis for consideration of approximately $5,900,000. Additionally, we paid approximately $2,000,000 for product rights to Acurenal in Poland. Sales of these products recorded during 2005 were $3,800,000. Costs of both of these acquisitions were capitalized as intangible product costs.

Xcel Pharmaceuticals, Inc.:  On March 1, 2005, we acquired Xcel Pharmaceuticals, Inc. (“Xcel”), a specialty pharmaceutical company focused on the treatment of disorders of the central nervous system, for $280,000,000 in cash, plus expenses of $5,435,000. Under the terms of the purchase agreement, we paid an additional $7,470,000 as a post-closing working capital adjustment. The Xcel acquisition expanded our existing neurology product portfolio with four products that are sold within the United States, and retigabine, a late-stage clinical product candidate that is an adjunctive treatment for partial-onset seizures in patients with epilepsy.

In connection with the Xcel acquisition, we completed an offering of 8,280,000 shares of our common stock in February 2005. We received net proceeds, after underwriting discounts and commissions, of $189,030,000 which were used to partially fund the Xcel acquisition. The remaining funds for the Xcel acquisition were obtained from existing cash and our marketable securities investments.

Xcel’s results of operations have been included in our consolidated statement of operations since the date of acquisition. We allocated the purchase price based on estimates of the fair value of the assets acquired and liabilities assumed at the date of acquisition. A portion of the purchase price was placed in an escrow account to cover potential claims under the purchase agreement that would arise within one year of the acquisition date. We filed a claim for indemnification from the former Xcel stockholders with respect to certain breaches of representation and warranties made by Xcel under the Xcel purchase agreement relating to Medicaid rebates on preacquisition sales and certain third-party claims. On June 13, 2007, we settled an arbitration relating to this claim. Under the settlement, we received $700,000 from the escrow fund of $5,000,000 that was set up to provide for indemnification claims by Valeant. The remaining escrow funds were released to the former Xcel shareholders and their representatives.

The components of the purchase price allocation for the Xcel acquisition are as follows (in thousands):

Purchase price:
Cash paid	$	280,000
Working capital adjustment		7,470
Transaction costs		5,435
	$	292,905
Allocation:
Xcel tangible assets acquired	$	8,875
In-process research and development		126,399
Intangible product rights		103,500
Goodwill		54,131
	$	292,905

The allocation of the purchase price includes $103,500,000 of intangible product rights, which is being amortized over a period of 10 years, $126,399,000 of IPR&D, which was expensed in 2005, and goodwill of $56,026,000 which was capitalized. Since the Xcel transaction was a stock purchase, neither the IPR&D nor the

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goodwill is deductible for tax purposes. We have allocated the goodwill to our North American pharmaceutical reporting unit.

We estimated the fair value of the IPR&D based on the use of a discounted cash flow model (including an estimate of future sales at an average gross margin of 80%). For each project, the estimated after-tax cash flows (using a tax rate of 35%) were probability weighted to take account of the stage of completion and risks surrounding the successful development and commercialization. The assumed tax rate is our estimate of the effective statutory tax rate for an acquisition of similar types of assets. The cash flows were discounted to a present value using a discount rate of 18%, which represents our risk adjusted after tax weighted average cost of capital for each product. We estimated we would incur future research and development costs of approximately $50,000,000 to complete the retigabine IPR&D project.

The following unaudited pro forma financial information presents the combined results of operations of Valeant and Xcel as if the acquisition had occurred as of the beginning of the period presented (in thousands except per share information). The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of our future consolidated results of operations or financial condition.

	2005
Net revenue	$	835,469
Loss from continuing operations		(144,335	)
Net loss		(193,901	)
Basic and diluted loss per share:
Loss from continuing operations	$	(1.57	)
Net loss	$	(2.11	)

The pro forma data above includes the charge for the write off of the IPR&D associated with the Xcel in 2005.

With respect to each of the business acquisitions discussed above, our allocations of the purchase prices are largely dependent on discounted cash flow analyses of projects and products of the acquired companies. The major risks and uncertainties associated with the timely and successful completion of these projects consist of the ability to confirm the safety and efficacy of the compound based on the data from clinical trials and obtaining necessary regulatory approvals. In addition, we cannot provide assurance that the underlying assumptions used to forecast the cash flows or the timely and successful completion of such projects will materialize as we estimated. For these reasons, among others, our actual results may vary significantly from the estimated results.

5.   Discontinued Operations

In 2007, we made a strategic decision to divest our Infergen product rights. The results of the Infergen operations and the related financial position have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS 144. The consolidated financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

In the twelve months ended December 31, 2007, the loss from discontinued operations primarily related to Infergen. The loss on disposal of discontinued operations in 2007 was primarily related to a legal judgment with respect to the discontinued biomedical business. In 2006, loss from discontinued operations was primarily related to our Infergen operations, offset in part by the partial release of an environmental reserve for the discontinued biomedical facility. The cost of goods sold of discontinued operations in 2007 includes a technology transfer payment of $5,259,000 made to the future manufacturer of Infergen.

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In the twelve months ended December 31, 2005, the loss from discontinued operations primarily related to the $47,200,000 charge for acquired in-process research and development related to the Infergen acquisition. We closed this acquisition on December 30, 2005 and did not recognize any revenue or operating expenses for Infergen in 2005 other than this charge. In August 2005, we disposed of a raw materials and manufacturing facility in Hungary for cash proceeds of $7,000,000. We recorded a net gain from discontinued operations of $1,725,000 on this disposal.

Summarized selected financial information for discontinued operations for the years ended December 31, 2007, 2006, and 2005 is as follows (in thousands):

	2007			2006			2005
Infergen:
Product sales	$	32,085		$	42,716		$	—
Costs and expenses:
Cost of goods sold (excluding amortization)		24,897			18,838			—
Selling expenses		25,602			20,077			—
General and administrative expenses		1,693			1,315			—
Research and development costs		6,476			4,176			—
Acquired in-process research and development		—			—			47,200
Amortization expense		4,950			6,600			—
Total costs and expenses		63,618			51,006			47,200
Loss from discontinued operations, Infergen		(31,533	)		(8,290	)		(47,200	)
Other discontinued operations:
Other income (loss)		—			5,089			(3,889	)
Consolidated discontinued operations:
Loss from discontinued operations		(31,533	)		(3,201	)		(51,089	)
Benefit for income taxes		(2	)		(45	)		—
Loss from discontinued operations		(31,531	)		(3,156	)		(51,089	)
Disposal of discontinued operations, net		(709	)		2,405			1,523
Loss from discontinued operations, net	$	(32,240	)	$	(751	)	$	(49,566	)

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The assets and liabilities of discontinued operations are stated separately as of December 31, 2007 and December 31, 2006 on the accompanying consolidated balance sheet. All of the assets of discontinued operations as of December 31, 2007 relate to the Infergen business. We have allocated $4,816,000 of goodwill to discontinued operations based on the relative fair value of Infergen in comparison with the North America segment. The major assets and liabilities categories of discontinued operations are as follows (in thousands):

	December 31,		December 31,
	2007		2006
ASSETS
Cash	$	—	$	203
Accounts receivable, net		—		21
Inventories, net		1,051		11,932
Prepaid expenses and other current assets		—		2
Property, plant and equipment, net		132		158
Goodwill		4,816		4,816
Intangible assets, net		54,450		59,400
Assets of discontinued operations	$	60,449	$	76,532
LIABILITIES
Accrued liabilities		1,897		12,686
Liabilities of discontinued operations	$	1,897	$	12,686

The assets held for sale and assets of discontinued operations as of December 31, 2006 had a total value of $125,047,000, which included the assets of discontinued operations of $76,532,000 detailed above and other assets held for sale, which primarily consisted of our former research and headquarters building in Costa Mesa, California and our manufacturing facilities in Basel, Switzerland and Puerto Rico.

Environmental contamination had previously been identified in the soil under a facility which housed operations of the discontinued biomedicals segment and is currently vacant. Remediation of the site involved excavation and disposal of the waste at appropriately licensed sites. Environmental reserves have been provided for remediation and related costs. Remediation costs have been applied against these environmental reserves as they have been incurred. As assessments and remediation have progressed, these liabilities have been reviewed and adjusted to reflect additional information. The environmental reserves were reduced in the third quarter of 2006 by $5,648,000 based upon contractual agreements for remediation work which totaled less than the amounts previously accrued for projects. We have substantially completed this environmental remediation work. In December 2007, we received formal license termination from the State of California following its inspection of the site. Total environmental reserves for this site were $1,897,000 and $12,660,000 as of December 31, 2007 and December 31, 2006, respectively, and are included in the current liabilities of discontinued operations. Although we believe that the reserves are adequate, there can be no assurance that the amount of expenditures and other expenses, which will be required relating to environmental remediation actions and compliance with applicable environmental laws will not exceed the amounts reflected in reserves or will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Any possible loss that may be incurred in excess of amounts provided for as of December 31, 2007 cannot be reasonably estimated.

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6.   Income Taxes

The components of income (loss) from continuing operations before income taxes and minority interest for each of the years ended December 31, 2007, 2006 and 2005 consists of the following (in thousands):

	2007			2006			2005
				(Restated)			(Restated)
Domestic	$	(66,032	)	$	(79,426	)	$	(196,686	)
Foreign		117,321			57,436			112,920
	$	51,289		$	(21,990	)	$	(83,766	)

The income tax provision for each of the years ended December 31, 2007, 2006 and 2005 consists of the following (in thousands):

	2007			2006			2005
				(Restated)			(Restated)
Current:
Federal	$	(18,112	)	$	1,379		$	28,760
Effect of foreign earnings repatriation		—			—			4,526
State		397			1,589			1,377
Foreign		36,521			36,999			40,332
		18,806			39,967			74,995
Deferred:
Federal		168			254			257
State		27			42			—
Foreign		6,232			(5,439	)		(20,179	)
		6,427			(5,143	)		(19,922	)
	$	25,233		$	34,824		$	55,073

Our effective tax rate from continuing operations differs from the applicable United States statutory federal income tax rate due to the following:

	2007			2006			2005
				(Restated)			(Restated)
Statutory rate		35	%		35	%		35	%
Foreign source income taxed at other effective rates		(12	)%		(69	)%		5	%
Change in valuation allowance		60	%		(65	)%		(35	)%
Net operating loss & examination adjustments		(31	)%		(47	)%		(31	)%
State tax and other, net		(3	)%		(12	)%		(6	)%
Effect of IPR&D, not deductible for tax		0	%		0	%		(34	)%
Effective rate		49	%		(158	)%		(66	)%

Our effective tax rates for the years ended December 31, 2007, 2006 and 2005 were significantly affected by recording valuation allowances to recognize the uncertainty of realizing the benefits of net operating losses and credits. The valuation allowances were recorded because there is insufficient objective evidence at this time to recognize those assets for financial reporting purposes. Ultimate realization of the benefit of these tax benefits is dependent upon generating sufficient taxable income in the United States and other locations prior to their expiration.

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At December 31, 2007 a valuation allowance of $151,715,000 had been recorded to offset U.S. deferred tax assets. The U.S. valuation allowance was increased by $53,106,000 during 2007, offset by reclassifications of uncertain tax positions of $60,095,000. Additionally, valuation allowances of $7,995,000 for foreign deferred tax assets had been recorded as of December 31, 2007.

In 2007 and 2006, the effective tax rate was also affected by pre-tax losses resulting from restructuring, and asset impairment charges in Asia and Puerto Rico of $15,430,000 and $37,223,000 respectively, for which no tax benefit was recorded.

During 2005, the Internal Revenue Service completed an examination of our tax returns for the years 1997 through 2001 and proposed adjustments to the tax liabilities for those years plus associated interest and penalties. Although a formal protest was filed in response to the proposed adjustments, in 2005 we recorded a related tax provision of $27,368,000. The provision consisted of $62,317,000 for the estimated additional taxes, interest and penalties associated with the period 1997 to 2001 which was reduced by utilization of $34,949,000 of net operating losses and other carryforwards. While substantial net operating loss and other carryforwards were available to offset our U.S. tax liabilities, the additional tax provision resulted from annual utilization limitations on those carryforwards that would result if the Internal Revenue Service adjustments were upheld.

During 2007, the IRS examination of the U.S. income tax returns for the years ended December 31, 1997 through 2001 was resolved. As a result, the 2007 provision for income taxes was reduced by $21,521,000, primarily related to resolution of a gain recognition issue which arose for the year ended December 31, 1999. In addition to the reduction in the provision for income taxes, the following accounts were affected: income taxes payable increased $6,314,000, income tax liability for uncertain tax positions decreased $73,814,000, deferred income taxes decreased $28,229,000, and the valuation allowance on deferred tax assets increased $17,749,000.

In 2005, the effective tax rate was also affected by pre-tax losses resulting from restructuring, asset impairment and work force reduction charges of $11,868,000 for which a minimal tax benefit of $1,087,000 (9%) was recorded. This minimal tax benefit reflects uncertainty of the realization of tax benefits in some of the jurisdictions in which these charges were incurred. Additionally, in 2005, we reversed valuation allowances of $10,527,000 on net operating losses for certain foreign operations and recorded a corresponding tax benefit due to the existence of additional evidence supporting the probability of realizing the benefit of these net operating losses. We also recorded net tax benefits associated with resolution of foreign examinations and tax law changes of $3,391,000.

Additionally, our tax rate was impacted in 2005 by IPR&D expenses associated with acquisitions which were structured as stock purchase transactions. IPR&D costs resulting from acquisitions structured as stock purchases are not deductible for U.S. tax purposes.

In 2005 and 2007 gains were realized by certain of our subsidiaries related to intercompany transfers of intangible property rights. These gains were recorded in the books of the subsidiaries and are subject to tax in the subsidiaries’ jurisdictions, but they were eliminated in consolidation for financial reporting purposes. The purchasing subsidiaries have recorded corresponding tax basis increases, which in most cases can be amortized and deducted for tax purposes. In 2005 and 2007, tax liabilities of $16,127,000 and $2,116,000 created by these transactions were recorded. However, because these are intercompany transactions, the associated expense was deferred and recorded as prepaid tax. The 2005 amount has been partially offset by carrying back $7,690,000 of net operating losses. Amortization of the prepaid tax balances of $538,000, $235,000 and $574,000 was recorded as tax expense during 2005, 2006 and 2007, respectively.

In years prior to 2005, no U.S. income or foreign withholding taxes were provided on the undistributed earnings of our foreign subsidiaries with the exception of Subpart F income, since management intended to reinvest those undistributed earnings in the foreign operations. However, during 2005, legislation provided for a special one-time tax deduction of 85 percent of certain foreign earnings that were repatriated to the United States (The American Jobs Creation Act of 2004). To take advantage of this opportunity during 2005, we repatriated $205,000,000 of earnings from certain foreign subsidiaries. Income tax expense of $4,526,000 associated with

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such repatriation was recorded in 2005, and an additional cost of $5,337,000 was been recorded as a reduction of the U.S. net operating losses (net of valuation allowance this has no current effect on tax expense).

During 2006, we reinstated our intention to reinvest undistributed earnings in the foreign operations. No U.S. income or foreign withholding taxes were provided on the 2006 or 2007 undistributed earnings. Included in the consolidated accumulated deficit at December 31, 2007 is approximately $435,549,000 of accumulated earnings of foreign operations that would be subject to United States income or foreign withholdings taxes, if and when repatriated. Management, however, does not intend to repatriate these amounts. We intend to reinvest the remaining undistributed earnings in foreign operations for an indefinite period of time.

The primary components of our net deferred tax asset at December 31, 2007 and 2006 are as follows (in thousands):

	2007			2006
				(Restated)
Deferred tax assets:
NOL and capital loss carryforwards	$	115,632		$	90,460
Inventory and other reserves		35,102			29,454
Tax credit carryforwards		24,240			13,007
Intangibles		31,826			30,873
Prepaid tax on intercompany transaction		9,202			7,663
Other		20,093			21,026
Valuation allowance		(159,710	)		(161,713	)
Total deferred tax asset		76,385			30,770
Fixed assets and other		(3,789	)		(2,576	)
Intangibles		(2,416	)		(6,927	)
Total deferred tax liability		(6,205	)		(9,503	)
Net deferred tax (liability) asset	$	70,180		$	21,267

Deferred tax assets and liabilities are recorded in the following captions in the consolidated balance sheets as of December 31, 2007 and 2006, respectively (in thousands):

	2007		2006
			(Restated)
Current deferred tax assets, net	$	11,819	$	8,550
Deferred tax asset, net		65,950		21,218
Income taxes		2,252		4,796
Deferred tax liabilities, net		5,337		3,705

In 2007 and 2006 the valuation allowance primarily relates to U.S. and foreign net operating losses.

At December 31, 2007, we had U.S. federal, state and foreign net operating losses of approximately $271,383,000, $180,300,000 and $7,640,000, respectively. In 2008, $19,289,000 of our U.S. federal net operating losses will expire. The remainder will begin to expire in 2019. The state net operating losses will begin to expire in 2014 and the foreign net operating losses will begin to expire in 2009. We also had a state capital loss of $48,640,000 that will begin to expire in 2008. We also had U.S. federal and state credits of $22,846,000 and $1,393,000 that will begin to expire in 2015.

Tax benefits associated with certain hedging activities, the exercise of employee stock options and with the convertible note hedge (see note 10) were not recognized during 2007 and 2006 due to the application of FAS 123(R)

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and the valuation allowance. As of December 31, 2007 approximately $4,009,000 of the valuation allowance related to hedges, $10,166,000 of the valuation allowance related to the tax benefits of stock option deductions and $12,085,000 related to the tax benefits of the convertible note hedge. These amounts are included in our net operating losses for tax reporting purposes. At such time as the valuation allowance is released, the tax benefit associated with these amounts will be credited to additional paid in capital. Additionally, approximately $16,800,000 of deferred tax assets was included in our acquisition of Xcel with a valuation allowance. Future releases of the valuation allowance related to these assets will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the effective date of SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141(R). Effective January 1, 2009, SFAS 141(R) provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction to income tax expense.

We adopted the provision of Financial Standards Accounting Board Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109 on January 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

													Unrecognized
							Gross			Deferred Federal,			Income Tax
	Federal,			Accrued			Unrecognized			State and Foreign			Benefits, Net of
	State and			Interest and			Income Tax			Income Tax			Deferred Federal and
	Foreign Tax			Penalties			Benefits			Benefits			State Benefits
							(In thousands)
Balance at January 1, 2007	$	122,697		$	18,529		$	141,226		$	19,800		$	121,426
Additions for tax positions related to the current year		1,214			88			1,302			840			462
Additions for tax positions related to prior years		8,337			2,449			10,786			(8,909	)		19,695
Settlements		(10,754	)		(10,767	)		(21,521	)		45,979			(67,500	)
Lapse of statute of limitations		(235	)		—			(235	)					(235	)
Balance at December 31, 2007		121,259			10,299			131,558			57,710			73,848
Less: tax attributable to timing items included above		(115,132	)		(887	)		(116,019	)		(57,710	)		(58,309	)
Total UTBs that, if recognized, would impact the effective income tax rate as of December 31, 2007	$	6,127		$	9,412		$	15,539		$	—		$	15,539

As of September 30, 2007, based on discussions with the IRS related to its exam of tax years 2003 and 2004, we believed it was reasonably possible that certain amounts would be reversed within the next twelve months. However, based on subsequent discussions, we no longer believe these amounts will reverse in the next twelve months, except for approximately $616,000 of federal, state and foreign uncertain tax benefits.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of January 1, 2007 and December 31, 2007, we had approximately $18,529,000 and $9,412,000 of accrued interest and penalties related to uncertain tax positions, respectively.

For the U.S., all years prior to 1997 are closed under the statute of limitations. Years subsequent to 1996 are open, with 2002 to 2004 in appeals, and 2005 and 2006 under examination. Our significant foreign subsidiaries are open to tax examinations for years ending in 2001 and later.

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7.   Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	2007			2006			2005
				(Restated)			(Restated)
Income:
Numerator for basic and dilutive earnings per share
Income (loss) from continuing operations	$	26,054		$	(56,817	)	$	(139,126	)
Loss from discontinued operations	$	(32,240	)	$	(751	)	$	(49,566	)
Net loss	$	(6,186	)	$	(57,568	)	$	(188,692	)
Shares:
Denominator for basic earnings per share:
Weighted shares outstanding		92,841			93,251			91,696
Vested stock equivalents (not issued)		188			136			101
Denominator for basic earnings per share		93,029			93,387			91,797
Denominator for diluted earnings per share:
Employee stock options		894			—			—
Other dilutive securities		53			—			—
Dilutive potential common shares		947			—			—
Denominator for dilutive earnings per share		93,976			93,387			91,797
Basic earnings (loss) per share:
Income (loss) from continuing operations	$	0.28		$	(0.61	)	$	(1.52	)
Loss from discontinued operations		(0.35	)		(0.01	)		(0.54	)
Basic loss per share	$	(0.07	)	$	(0.62	)	$	(2.06	)
Diluted earnings (loss) per share:
Income (loss) from continuing operations	$	0.28		$	(0.61	)	$	(1.52	)
Loss from discontinued operations		(0.35	)		(0.01	)		(0.54	)
Diluted loss per share	$	(0.07	)	$	(0.62	)	$	(2.06	)

The $240,000,000 3.0% Convertible Subordinated Notes due 2010 and the $240,000,000 4.0% Convertible Subordinated Notes due 2013, discussed in Note 10, allow us to settle any conversion by remitting to the note holder the principal amount of the note in cash, while settling the conversion spread (the excess conversion value over the accreted value) in shares of our common stock. The accounting for convertible debt with such settlement features is addressed in EITF Issue No. 90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.” It is our intent to settle the notes’ conversion obligations consistent with Instrument C of EITF 90-19. Only the conversion spread, which will be settled in stock, results in potential dilution in our earnings-per-share computations as the accreted value of the notes will be settled for cash upon the conversion. The calculation of diluted earnings per share was not affected by the conversion spread in the years ended December 31, 2007, 2006, and 2005.

For the years ended December 31, 2006 and 2005, options to purchase 1,863,000 and 2,908,000 weighted-average shares of common stock, respectively, were not included in the computation of earnings per share because we incurred a loss from continuing operations and the effect would have been anti-dilutive.

For the years ended December 31, 2007, 2006 and 2005, options to purchase 8,990,000, 9,118,000 and 4,441,000 weighted-average shares of common stock, respectively, were also not included in the computation of

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earnings per share because the options exercise prices were greater than the average market price of our common stock and, therefore, the effect would have been anti-dilutive.

8.   Detail of Certain Accounts

The following tables present the details of certain amounts included in the consolidated balance sheet at December 31, 2007 and 2006:

	2007			2006
				(Restated)
Accounts receivable, net:
Trade accounts receivable	$	162,591		$	180,466
Royalties receivable		18,620			22,212
Other receivables		23,513			31,487
		204,724			234,165
Allowance for doubtful accounts		(12,928	)		(7,014	)
	$	191,796		$	227,151
Inventories, net:
Raw materials and supplies	$	30,935		$	37,045
Work-in-process		13,707			21,477
Finished goods		89,363			86,522
		134,005			145,044
Allowance for inventory obsolescence		(18,828	)		(14,297	)
	$	115,177		$	130,747
Property, plant and equipment, net:
Land	$	1,778		$	1,593
Buildings		59,029			45,545
Machinery and equipment		104,275			98,935
Furniture and fixtures		27,898			20,842
Leasehold improvements		8,060			6,202
		201,040			173,117
Accumulated depreciation and amortization		(98,796	)		(89,476	)
Construction in progress		14,132			10,480
	$	116,376		$	94,121

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	2007		2006
			(Restated)
Accrued liabilities
Payroll and related items	$	31,302	$	37,092
Accrued returns, rebates and allowances		54,846		51,324
Legal and professional fees		9,417		7,584
Accrued research and development costs		18,586		10,490
Environmental accrual		1,354		1,638
Interest		4,860		4,860
Accrued royalties payable		2,446		4,409
Other		16,943		29,308
Total accrued liabilities	$	139,754	$	146,705

At December 31, 2007, construction in progress primarily includes costs incurred in plant expansion projects and costs associated with the installation of an enterprise resource planning information system. At December 31, 2006, construction in progress primarily includes costs incurred in plant expansion projects.

9.   Intangible Assets and Goodwill

The components of intangible assets at December 31, 2007 and 2006 were as follows (in thousands):

	Weighted		December 31, 2007							December 31, 2006
	Average		Gross		Accumulated			Net		Gross		Accumulated			Net
	Lives		Amount		Amortization			Amount		Amount		Amortization			Amount
Product rights
Neurology		13	$	306,398	$	(128,267	)	$	178,131	$	291,388	$	(99,090	)	$	192,298
Infectious diseases		11		21,992		(14,054	)		7,938		20,500		(11,771	)		8,729
Dermatology		19		111,934		(54,178	)		57,756		87,105		(44,029	)		43,076
Other products		11		343,831		(192,253	)		151,578		310,633		(157,331	)		153,302
Total product rights		14		784,155		(388,752	)		395,403		709,626		(312,221	)		397,405
License agreement		5		67,376		(61,204	)		6,172		67,376		(49,866	)		17,510
Total intangible assets			$	851,531	$	(449,956	)	$	401,575	$	777,002	$	(362,087	)	$	414,915

Future amortization of intangible assets at December 31, 2007 is scheduled as follows (in thousands):

	Scheduled Future Amortization Expense
	2008		2009		2010		2011		2012		Thereafter
Product rights
Neurology	$	29,438	$	29,438	$	29,269	$	22,699	$	21,065	$	46,223
Infectious diseases		1,331		1,326		780		780		780		2,941
Dermatology		10,296		10,198		9,861		9,671		4,637		13,093
Other products		19,077		18,340		18,276		17,743		17,555		60,586
Total product rights		60,142		59,302		58,186		50,893		44,037		122,843
License agreement		6,172		—		—		—		—		—
Total	$	66,314	$	59,302	$	58,186	$	50,893	$	44,037	$	122,843

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Goodwill balances relate primarily to the Xcel acquisition and totaled $80,346,000 and $75,346,000 at December 31, 2007 and 2006, respectively. In 2007, we made a $5,000,000 contingent milestone payment to InterMune related to Infergen which we recorded as goodwill. We subsequently reclassified $4,816,000 of goodwill to discontinued operations based on the relative fair value of Infergen in comparison with the North America segment.

10.   Debt and lease obligations

As of December 31, 2007 and 2006, long-term debt consists of the following (in thousands):

	2007			2006
3% Convertible Subordinated Notes due 2010	$	240,000		$	240,000
4% Convertible Subordinated Notes due 2013		240,000			240,000
7% Senior Notes due 2011		300,716			295,682
Mortgages in Swiss francs with an interest rate of LIBOR + 1.5%; interest and principal payable semi-annually through 2030		—			7,177
Other		3,310			3,919
		784,026			786,778
Less: current portion		(1,474	)		(8,582	)
Total long-term debt	$	782,552		$	778,196

In December 2003, we issued $300,000,000 aggregate principal amount of 7.0% Senior Notes due 2011 (the “7.0% Senior Notes”). Interest on the 7% Senior Notes is payable semi-annually on June 15 and December 15 of each year. We may, at our option, redeem some or all of the 7.0% Senior Notes at any time on or after December 15, 2007, at a redemption price of 103.50%, 101.75% and 100.00% of the principal amount during the twelve-month period beginning December 15, 2007, 2008 and 2009 and thereafter, respectively. The 7.0% Senior Notes are senior unsecured obligations. They rank senior in right of payment to any of our existing and future subordinated indebtedness. The indenture governing the 7.0% Senior Notes includes certain covenants which restricts the incurrence of additional indebtedness, the payment of dividends and other restricted payments, the creation of certain liens, the sale of assets or the ability to consolidate or merge with another entity, subject to qualifications and exceptions. In January 2004, we entered into an interest rate swap agreement with respect to $150,000,000 in principal amount of the Senior Notes. See Note 13 for a description of the interest rate swap arrangement.

In November 2003, we issued $240,000,000 aggregate principal amount of 3.0% Convertible Subordinated Notes due 2010 (the “3.0% Notes”) and $240,000,000 aggregate principal amount of 4.0% Convertible Subordinated Notes due 2013 (the “4.0% Notes”), which were issued as two series of notes under a single indenture. Interest on the 3.0% Notes is payable semi-annually on February 16 and August 16 of each year. Interest on the 4.0% Notes is payable semi-annually on May 15 and November 15 of each year. We have the right to redeem the 4.0% Notes, in whole or in part, at their principal amount on or after May 20, 2011. The 3.0% Notes and 4.0% Notes are convertible into our common stock at a conversion rate of 31.6336 shares per each $1,000 principal amount of notes, subject to adjustment. Upon conversion, we will have the right to satisfy the conversion obligations by delivery, at our option in shares of our common stock, in cash or in a combination thereof. It is our intent to settle the principal amount of the 3.0% Notes and 4.0% Notes in cash. The 3.0% Notes and 4.0% Notes are subordinated unsecured obligations, ranking in right of payment behind our senior debt, including the 7.0% Senior Notes.

In connection with the offering of the 3.0% Notes and the 4.0% Notes, we entered into convertible note hedge and written call option transactions with respect to our common stock (the “Convertible Note Hedge”). The Convertible Note Hedge consisted of purchasing a call option on 12,653,440 shares of our common stock at a strike price of $31.61 and selling a written call option on the identical number of shares at $39.52. The number of shares covered by the Convertible Note Hedge is the same number of shares underlying the conversion of $200,000,000

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principal amount of the 3.0% Notes and $200,000,000 principal amount of the 4.0% Notes. The Convertible Note Hedge is expected to reduce the potential dilution from conversion of the notes. The written call option sold offset, to some extent, the cost of the written call option purchased. The net cost of the Convertible Note Hedge of $42,880,000 was recorded as the sale of a permanent equity instrument pursuant to guidance in EITF 00-19. Subsequently, as a result of the cessation of Valeant’s common dividend, the strike price on the Convertible Note Hedge was adjusted during 2007, with the new strike prices becoming $34.61 and $35.36 for the 3.0% Notes and the 4.0% Notes, respectively.

The total number of shares applicable to the Convertible Note Hedge remains the same at 12,653,440, with 6,326,720 shares still allocated to each set of purchased call options in connection with the 3.0% and the 4.0% Notes, respectively.

Aggregate annual maturities of long-term debt are as follows (in thousands):

2008		1,474
2009		1,301
2010		240,466
2011		300,785
2012		—
Thereafter		240,000
Total	$	784,026

The estimated fair value of our public debt, based on quoted market prices or on current interest rates for similar obligations with like maturities, was approximately $714,766,000 and $735,637,000 compared to its carrying value of $780,716,000 and $775,682,000 at December 31, 2007 and 2006, respectively.

We maintain no lines of credit in the U.S. and have a short-term line of credit of $700,000 in the aggregate outside the U.S., under which $181,000 was outstanding at December 31, 2007. The line of credit provides for short-term borrowings and bears interest at a variable rate based upon LIBOR or an equivalent index.

We lease certain administrative and laboratory facilities under non-cancelable operating lease agreements that expire through 2017. Additionally, we lease certain automobiles and computer software under lease agreements that qualify as capital leases. The following table summarizes our lease commitments at December 31, 2007 (in thousands):

	Operating		Capital
	Leases		Leases
2008	$	7,548	$	1,616
2009		7,561		1,327
2010		7,185		488
2011		6,068		96
2012		5,413		—
Thereafter		20,456		—
Total	$	54,231	$	3,527
Amounts representing interest				(217	)
Amounts of lease obligations recorded as debt			$	3,310

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11.   Pension and Postretirement Employee Benefit Plans

We operate 401(k) and similar defined contribution retirement plans for our employees in the United States. Under these plans employees are allowed to contribute up to 15% of their income and Valeant matches such contributions with 50% of the amount contributed up to 3% of salary.

Outside the United States certain groups of our employees are covered by defined benefit retirement plans. In 2006 the FASB issued SFAS No. 158 (SFAS 158) which was effective for Valeant on December 31, 2006 and required that we recognize the net over-funded or under-funded financial position of our defined benefit retirement plans in our balance sheet. The difference between the overall funded status of each plan and the amounts of assets and liabilities recorded in our financial statements is charged to accumulated other comprehensive income and represents pension costs and benefits that will be recorded in the income statement in future years under currently effective pension accounting rules.

Certain amounts of our pension accounts have been restated for the year ended December 31, 2006, including the net pension benefit obligation, which was $2,169,000 as originally reported and $2,786,000 as restated and the net pension benefit cost, which was $2,818,000 as originally reported and $1,575,000 as restated.

Below is a summary of the activity in our defined benefit pension plans which have projected pension obligations in excess of plan assets for the years ended December 31, 2007 and 2006 (amounts in thousands):

	2007			2006
				(Restated)
Changes in benefit obligation:
Balance at beginning of the year	$	30,896		$	25,269
Service cost		1,198			1,099
Interest cost		1,561			1,310
Employee contributions		—			10
Actuarial (gains) losses		(1,229	)		1,068
Total benefits paid		(2,888	)		(1,866	)
Acquisitions		—			1,014
Currency exchange and other		979			2,992
Balance at end of the year	$	30,516		$	30,896
Changes in plan assets:
Balance at beginning of the year	$	18,314		$	15,807
Actual return on plan assets		136			902
Employer contributions		4,994			356
Employee contributions		27			56
Benefits paid from plan assets		(925	)		(820	)
Currency exchange and other		410			2,012
Balance at end of the year	$	22,956		$	18,314
Projected benefit obligations in excess of plan assets	$	7,560		$	12,582

Below is a summary of the activity in our defined benefit pension plans which have plan assets in excess of projected pension obligations for the years ended December 31, 2007 and 2006 (amounts in thousands). Included below are the assets and obligations of the plan covering our current and former employees in Switzerland.

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	2007			2006
				(Restated)
Changes in benefit obligation:
Balance at beginning of the year	$	52,466		$	56,743
Service cost		1,377			1,836
Interest cost		1,669			1,865
Employee contributions		824			900
Actuarial (gains) losses		(1,633	)		(1,281	)
Total benefits paid		(4,394	)		(3,267	)
Plan settlements and curtailments		(43,984	)		(8,203	)
Currency exchange and other		1,835			3,871
Balance at end of the year	$	8,161		$	52,466
Changes in plan assets:
Balance at beginning of the year	$	62,262		$	60,653
Actual return on plan assets		2,678			4,920
Employer contributions		1,094			1,600
Employee contributions		824			900
Benefits paid from plan assets		(4,394	)		(3,267	)
Plan settlements and curtailments		(54,238	)		(6,886	)
Currency exchange and other		2,154			4,341
Balance at end of the year	$	10,381		$	62,262
Plan assets in excess of projected benefit obligations	$	2,219		$	9,796

The funded status of the defined benefit pension plans at December 31, 2007 and 2006 are as follows:

	2007			2006
				(Restated)
Surplus on plans with assets in excess of obligations		2,219			9,796
Deficit on plans with obligations in excess of assets		(7,560	)		(12,582	)
Net surplus/(deficit)	$	(5,340	)	$	(2,786	)

At December 31, 2007 the accumulated benefit obligations of our defined benefit pension plans totaled $34,734,000 of which $26,678,000 relates to plans with total assets are less than the total pension obligations and $8,056,000 relates to plans with assets in excess of pension obligations.

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Pension expense related to these plans in 2007 and 2006 was composed of the following (amounts in thousands):

	2007			2006
				(Restated)
Service cost	$	2,575		$	3,022
Interest cost		3,230			3,204
Expected return on plan assets		(3,809	)		(3,698	)
Amortization of past service cost		18			12
Amortization of net transition obligation		24			24
Recognized actuarial net loss		29			332
Net settlement and curtailment costs		1,164			(1,320	)
Net periodic benefit cost	$	3,231		$	1,575

The weighted average actuarial assumptions related to the determination of pension liabilities and expense are as follows:

	2007			2006
Expected return on plan assets		5.96	%		4.61	%
Discount rate for determining pension benefit obligations		5.75	%		4.04	%
Salary increase rate		2.56	%		1.83	%

Amounts recorded in our consolidated balance sheet as December 31, 2007 and 2006 that are related to defined benefit pension plans are as follows (in thousands):

	2007			2006
				(Restated)
Current liabilities	$	(89	)	$	(89	)
Non-current liabilities		(7,479	)		(12,758	)
Other assets		2,224			9,797
Accumulated other comprehensive income		4,817			(1,021	)
Net amount recognized in income	$	(527	)	$	(4,071	)

The amounts of pension costs included in accumulated other comprehensive income at December 31, 2007 and 2006 are as follows (in thousands):

	2007		2006
			(Restated)
Unrecognized net actuarial (gains)/losses	$	4,443	$	(1,424	)
Unrecognized prior service cost		313		336
Unrecognized net transition obligation		60		66
Total	$	4,817	$	(1,021	)

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Amounts recognized in accumulated other comprehensive income during 2007 are as follows:

Balance as at December 31, 2006	$	(1,021	)
Actuarial loss/(gain)		(3,285	)
Settlement loss/(gain)		10,254
Portion of net loss/(gain) recognized due to settlement		(1,164	)
Exchange rate and other		33
Balance as at December 31, 2007	$	4,817

The amounts of pension costs included in accumulated other comprehensive income in which are expected to be recorded in income in 2008 are as follows (amounts in thousands):

Unrecognized net actuarial gains	$	444
Unrecognized prior service cost		31
Unrecognized net transition obligation		6
Total	$	482

The amounts of employers’ contributions which are expected to be recorded in 2008 are as follows:

Estimated employers’ contributions in 2008 $ 779

12.   Supplemental Cash Flow Disclosures

The following table sets forth the amounts of interest and income taxes paid during 2007, 2006 and 2005 (in thousands):

	2007		2006		2005
Interest paid	$	37,800	$	38,054	$	38,094
Income taxes paid	$	58,768	$	42,052	$	63,224

13.   Derivatives and Hedging Activities

We use derivative financial instruments to hedge foreign currency and interest rate exposures. We do not speculate in derivative instruments in order to profit from foreign currency exchange or interest rate fluctuations; nor do we enter into trades for which there is no underlying exposure.

Interest Rate Swap Agreement:  In January 2004, we entered into an interest rate swap agreement with respect to the $150,000,000 principal amount of the 7.0% Senior Notes due 2011 (the “Interest Rate Swap”), with the objective of initially lowering our effective interest rate by exchanging fixed rate payments for floating rate payments. The agreement provides that we will exchange our 7.0% fixed-rate payment obligation for variable-rate payments of six-month LIBOR plus 2.409% (7.01% as of December 31, 2007). The Interest Rate Swap is designated as a fair value hedge and is deemed perfectly effective. The counterparty to the swap may, at its option, terminate the swap, in whole or in part, on or after December 15, 2007, at a premium of 3.50%, 1.75% and 0.00% of the notional amount during the twelve-month period beginning December 15, 2007, 2008, and 2009 and thereafter, respectively. At December 31, 2007, the fair value of the Interest Rate Swap was an asset of $715,000 and this amount has been offset against long-term debt as a fair value adjustment. The underlying portion of the hedged debt is also marked to market through the profit and loss account. In support of our obligation under the Interest Rate Swap, we are required to maintain a minimum level of cash and investment collateral depending on the fair market value of the Interest Rate Swap. As of December 31, 2007, $5,050,000 is recorded on the balance sheet in other assets related to collateral on the Interest Rate Swap.

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Foreign Currency Hedge Transactions:  During 2007, we entered into various forward currency contracts to a) reduce our exposure to forecasted 2008 Euro and Japanese Yen denominated royalty revenue and b) hedge our net investment in our Polish and Brazilian subsidiaries and c) utilize fair value hedges to reduce our exposure to various currencies as a result of repetitive short-term intercompany investments and obligations and d) reduce our Canadian subsidiary’s exposure to its investment in U.S. Dollar denominated securities. In the aggregate, as a result of all of these activities, an unrealized gain of $1,206,000 was recorded in the financial statements at December 31, 2007. A more detailed description of the accounting treatment of these activities follows:

Beginning in March 2004, we entered into a series of forward contracts to reduce exposure to variability in the Euro compared to the U.S. Dollar (the “Cash Flow Hedges”). The Cash Flow Hedges cover the Euro and Japanese Yen denominated royalty payments on forecasted Euro and Japanese Yen royalty revenue. The Cash Flow Hedges were designated as cash flow hedges. The Cash Flow Hedges have been consistent with our risk management policy, which allows for the hedging of risk associated with fluctuations in foreign currency for anticipated future transactions. The Cash Flow Hedges have been determined to be fully effective as a hedge in reducing the risk of the underlying transactions.

At December 31, 2007, the notional amount of the Euro and Yen contracts utilized to hedge currency exposure was $17,788,000 (the “Cash Flow Hedges”). The Cash Flow Hedges have been determined to be fully effective in reducing the risk of currency rate fluctuations with the Euro and the Yen. We have recorded gains of $323,000 related to the Cash Flow Hedges in other comprehensive income for the year ended December 31, 2007.

At December 31, 2007, the notional amount of the Polish Zloty contracts utilized to hedge currency exposure was $35,000,000 (The “Net Investment Hedges”). The Net Investment Hedges have been determined to be fully effective in reducing the risk of currency rate fluctuations with the Zloty. We have recorded total losses of $441,000 related to the Net Investment Hedges in other comprehensive income for the year ended December 31, 2007.

At December 31, 2007, the notional amount of various currency contracts utilized to hedge currency exposure in our Treasury Center was $72,070,000 (the “Treasury Center Hedges”). We have chosen not to seek hedge accounting treatment for the Treasury Center Hedges as these contracts are short term (less than 30 days in duration) and offset matching intercompany exposures in selected Valeant subsidiaries. We have recorded a total gain of $944,000 related to the Treasury Center Hedges in earnings for the year ended December 31, 2007.

At December 31, 2007, the notional amount of the Brazilian Real contracts utilized to hedge currency exposure in our Brazilian subsidiary was $6,525,000 (The “Brazil Hedges”). We have chosen not to seek hedge accounting treatment for the Brazil Hedges as any gain or loss on these contracts offset closely any gain or loss on matching intercompany exposures in our Brazil subsidiary. We have recorded total loss of $110,000 related to the Brazil Hedges in earnings for the year ended December 31, 2007.

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At December 31, 2007, the notional amount of the Canadian Dollar contracts utilized to hedge currency exposure for our Canadian subsidiary relating to an investment denominated in U.S. Dollars was $26,000,000 (The “Fair Value Hedge”). The Fair Value Hedges have been determined to be fully effective in reducing the risk of currency rate fluctuations with the Canadian Dollar. We have recorded a total gain of $490,000 related to the Fair Value Hedge in earnings for the year ended December 31, 2007.

	Derivatives and Hedging Activity
	December 31,					December 31,
	2007					2006
			Gain/(Loss)					Gain/(Loss)
			Amount Held in					Amount Held in
	Notional		OCI or			Notional		OCI or
Description	Amount		Recognized			Amount		Recognized
Undesignated Hedges	$	78,595	$	834		$	14,605	$	(71	)
Net Investment Hedges	$	35,000	$	(441	)	$	74,205	$	963
Cash Flow Hedges	$	17,788	$	323		$	10,479	$	(106	)
Fair Value Hedges	$	26,000	$	490		$	0	$	0
Interest Rate Swap	$	150,000	$	715		$	150,000	$	(4,318	)

Beginning in March 2004, we entered into a series of forward contracts to reduce exposure to variability in the Euro compared to the U.S. Dollar (the “Cash Flow Hedges”). The Cash Flow Hedges cover the Euro and Japanese Yen denominated royalty payments on forecasted Euro and Japanese Yen royalty revenue. The Cash Flow Hedges were designated as cash flow hedges. The Cash Flow Hedges have been consistent with our risk management policy, which allows for the hedging of risk associated with fluctuations in foreign currency for anticipated future transactions. The Cash Flow Hedges have been determined to be fully effective as a hedge in reducing the risk of the underlying transactions.

14.   Concentrations of Credit Risk

We are exposed to concentrations of credit risk related to our cash deposits and marketable securities. We place our cash and cash equivalents with respected financial institutions. Our cash and cash equivalents and marketable securities totaled $361,487,000 and $335,746,000 at December 31, 2007 and 2006, respectively, and consisted of time deposits, commercial paper and money market funds through approximately ten major financial institutions. We are also exposed to credit risk related to our royalties receivable from Schering-Plough, which totaled $18,205,000 and $18,692,000 at December 31, 2007 and 2006, respectively.

During the year ended December 31, 2007, one customer, McKesson Corporation, accounted for more than 10% of consolidated product sales. Sales to McKesson Corporation and its affiliates in the United States, Canada, and Mexico were $132,035,000 in the year ended December 31, 2007, representing 17% of our product sales. At December 31, 2007 and December 31, 2006 accounts receivables balances with McKesson Corporation and its affiliates in the United States, Canada, and Mexico were $25,988,000 and $34,851,000, respectively.

15.   Stock and Stock Incentive Programs

In June 2007, our Board of Directors authorized a stock repurchase program. This program authorized us to repurchase up to $200,000,000 of our outstanding common stock in a 24-month period. Under the program, purchases may be made from time to time on the open market, in privately negotiated transactions, and in amounts as we see appropriate. The number of shares to be purchased and the timing of such purchases are subject to various factors, which may include the price of our common stock, general market conditions, corporate requirements, including restrictions in our debt covenants, and alternate investment opportunities. For the year ended December 31, 2007, we had purchased 6,490,690 shares, for a total amount of $99,557,000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In May 2006, our stockholders approved our 2006 Equity Incentive Plan (the “Incentive Plan”), which is an amendment and restatement of our 2003 Equity Incentive Plan. The number of shares of common stock authorized for issuance under the Incentive Plan was 22,304,000 in the aggregate, with 5,004,000 remaining available for grant at December 31, 2007. The Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and stock bonuses to our key employees, officers, directors, consultants and advisors. Options granted under the Incentive Plan must have an exercise price that is not less than 100% of the fair market value of the common stock on the date of grant and a term not exceeding 10 years. Under the Incentive Plan, other than with respect to options and stock appreciation rights awards, shares may be issued as awards for which a participant pays less than the fair market value of the common stock on the date of grant. Generally, options vest ratably over a four-year period from the date of grant.

The following table sets forth information relating to the Incentive Plan (in thousands, except per share data):

				Weighted
				Average
	Number of			Exercise
	Shares			Price
Shares under option, December 31, 2004		13,336		$	17.93
Granted		2,192		$	18.16
Exercised		(160	)	$	13.36
Canceled		(736	)	$	22.28
Shares under option, December 31, 2005		14,632		$	17.80
Granted		2,014		$	18.54
Exercised		(1,592	)	$	10.34
Canceled		(1,703	)	$	21.81
Shares under option, December 31, 2006		13,351		$	18.28
Granted		1,094		$	15.12
Exercised		(1,241	)	$	11.63
Canceled		(2,312	)	$	21.11
Shares under option, December 31, 2007		10,892		$	18.13
Exercisable at December 31, 2005		7,197		$	17.82
Exercisable at December 31, 2006		8,374		$	18.00
Exercisable at December 31, 2007		7,846		$	18.26
Awards available for grant at December 31, 2005		513
Awards available for grant at December 31, 2006		4,376
Awards available for grant at December 31, 2007		5,004

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The following table sets forth information relating to our restricted stock unit awards during the years ended December 31, 2007, 2006, and 2005 (in thousands, except per share data):

				Weighted
				Average
				Grant
	Number of			Date Fair
	Shares			Value
Nonvested awards at December 31, 2004		51		$	17.70
Granted		142		$	18.83
Vested		(56	)	$	17.90
Forfeited		—		$	—
Nonvested awards at December 31, 2005		137		$	18.76
Granted		70		$	16.88
Vested		(47	)	$	20.14
Forfeited		(47	)	$	17.99
Nonvested awards at Decemvaber 31, 2006		113		$	17.34
Granted		679		$	14.01
Vested		(55	)	$	16.37
Forfeited		(59	)	$	14.71
Nonvested awards at December 31, 2007		678		$	14.31

The schedule below reflects the number of outstanding and exercisable options as of December 31, 2007 segregated by price range (in thousands, except per share and life data):

	Outstanding				Exercisable
			Weighted				Weighted		Weighted
			Average				Average		Average
	Number		Exercise		Number		Exercise		Remaining
Range of Exercise Prices	of Shares		Price		of Shares		Price		Life (years)
$ 8.10 - $17.72		4,768	$	13.75		3,107	$	12.50		6.51
$18.55 - $23.78		3,666	$	18.92		2,547	$	18.94		5.73
$23.92 - $46.25		2,458	$	25.46		2,192	$	25.64		4.70
		10,892				7,846

SFAS No. 123(R) Assumptions and Fair Value:  The fair value of options granted in 2007 and 2006 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2007	2006	2005
Average life of option (years)	5.7	4.1 - 5.7	4.1 - 4.2
Stock price volatility	35% - 37%	37% - 39%	39% - 61%
Expected dividend per share	$0.00	$0.00 - $0.31	$0.31
Risk-free interest rate	4.15 - 4.76%	4.54 - 4.80%	3.77 - 4.40%
Weighted-average fair value of options	$6.21	$7.83	$5.87
Estimated forfeiture rate	35%	5%	NA

NA — Not applicable

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The aggregate intrinsic value of the stock options outstanding at December 31, 2007 was $4,442,000. The aggregate intrinsic value of the stock options that are both outstanding and exercisable at December 31, 2007 was $4,442,000. During the year ended December 31, 2007 stock options with an aggregate intrinsic value of $7,151,000 were exercised. Intrinsic value is the “in the money” valuation of the options or the difference between market and exercise prices. The fair value of options that vested in the year ended December 31, 2007, as determined using the Black-Scholes valuation model, was $14,372,000.

2003 Employee Stock Purchase Plan:  In May 2003, our stockholders approved the Valeant Pharmaceuticals International 2003 Employee Stock Purchase Plan (the “ESPP”). The ESPP provides employees with an opportunity to purchase common stock at a 15% discount. There are 7,000,000 shares of common stock reserved for issuance under the ESPP, plus an annual increase on the first day of our fiscal year for a period of ten years, commencing on January 1, 2005 and ending on January 1, 2015, equal to the lower of (i) 1.5% of the shares of common stock outstanding on each calculation date, (ii) 1,500,000 shares of common stock, or (iii) a number of shares that may be determined by the Compensation Committee. In 2006, we issued 64,000 shares of common stock for proceeds of $938,000 under the ESPP. In the year ended December 31, 2007, 78,000 shares were issued for proceeds of $858,000.

Restricted Stock Units:  Non-employee members of our board of directors receive compensation in the form of restricted stock units, cash retainers and meeting fees for each meeting they attend during the year. During 2007 and 2006, we granted our non-employee directors 63,132 and 72,194 restricted stock units, respectively. The restricted stock units issued to non-employee directors in these periods had a fair value of $998,000 and $1,220,000, respectively. Each restricted stock unit granted to non-employee directors vests over one year or less, is entitled to dividend equivalent shares and is exchanged for a share of our common stock one year after the director ceases to serve as a member of our Board.

During 2005 we granted certain officers of the company restricted stock units. Each restricted stock unit vests 50 percent three years after grant with the balance vesting equally in years four and five after grant, is entitled to dividend equivalent shares and is exchanged for a share of our common stock upon vesting.

During 2007, we granted certain officers of the company additional restricted stock units under a market performance award. Shares of this restricted stock unit award may vest based upon three years of service and certain stock price appreciation conditions. In addition, during 2007, we granted certain officers and employees of the company restricted stock units. Each share of these restricted stock awards includes a service requirement of three years. As of December 31, 2007 and December 31, 2006, there were 858,076 and 268,524 restricted stock units outstanding, respectively.

A summary of stock compensation expense for our stock incentive plans is presented below (amounts in thousands):

	2007		2006		2005
Employee stock options	$	11,012	$	18,532	$	1,192
Employee stock purchase plan		224		309		—
Phantom and restricted stock units		1,984		2,007		2,139
Total stock-based compensation expense	$	13,220	$	20,848	$	3,331

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Stock compensation expense was charged to the following accounts (in thousands):

	2007		2006		2005
Cost of goods sold	$	596	$	1,256	$	252
Selling expenses		3,097		3,390		140
General and administrative expenses		8,708		13,697		2,031
Research and development costs		819		2,505		908
Total stock-based compensation expense	$	13,220	$	20,848	$	3,331

Future stock compensation expense for restricted stock units and stock option incentive awards outstanding at December 31, 2007 is as follows (in thousands):

2008	$	7,817
2009		4,838
2010 and thereafter		3,035
	$	15,690

This calculation of future stock compensation expense is reduced for estimated stock option forfeitures, using an estimated forfeiture rate of 35%.

Dividends:  We did not declare and did not pay dividends in 2007. We declared and paid cash dividends of $0.0775 per share for the first and second quarters of 2006. We also paid cash dividends of $0.0775 per share in the first quarter of 2006 for the dividend declared in the fourth quarter of 2005.

16.   Commitments and Contingencies

We are involved in several legal proceedings, including the following matters (Valeant was formerly known as ICN Pharmaceuticals, Inc.):

Securities Class Actions:

Derivative Actions Related to Ribapharm Bonuses:  We were a nominal defendant in a shareholder derivative lawsuit pending in state court in Orange County, California, styled James Herrig, IRA v. Milan Panic et al. This lawsuit, which was filed on June 6, 2002, purported to assert derivative claims on our behalf against certain of our current and/or former officers and directors. The lawsuit asserted claims for breach of fiduciary duties, abuse of control, gross mismanagement and waste of corporate assets. The plaintiff sought, among other things, damages and a constructive trust over cash bonuses paid to the officer and director defendants in connection with the Ribapharm offering. In March 2007, the complaint was dismissed, with prejudice. On January 8, 2008, the Court awarded Plaintiff’s counsel $58,633 in fees.

On October 1, 2002, several of our former and current directors, as individuals, as well as Valeant, as a nominal defendant, were named as defendants in a second shareholder’s derivative complaint filed in the Delaware Court of Chancery, styled Paul Gerstley v. Norman Barker, Jr. et al. The original complaint in the Delaware action purported to state causes of action for violation of Delaware General Corporation Law Section 144, breach of fiduciary duties and waste of corporate assets in connection with the defendants’ management of our company.

We settled the litigation with respect to ten of the defendants prior to trial. The claims with respect to defendants Milan Panic and Adam Jerney, who received Ribapharm Bonuses of $33,050,000 and $3,000,000, respectively, were tried in Delaware Chancery Court in a one-week trial beginning February 27, 2006. We entered into a settlement agreement with Mr. Panic. Pursuant to which, Mr. Panic paid us $20,000,000. We recorded a

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$17,550,000 gain resulting from this settlement in the third quarter of 2006. The amount reflects the settlement proceeds net of related costs associated with the litigation and settlement arrangement.

On March 1, 2007, the Delaware Court of Chancery issued an opinion finding Mr. Jerney liable for breach of fiduciary duty and on March 14, 2007, entered an order requiring Mr. Jerney to pay us a total of $6,983,085. We are pursuing collection of the award.

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

Derivative Actions Related to Stock Options:  We are a nominal defendant in two shareholder derivative lawsuits pending in state court in Orange County, California, styled (i) Michael Pronko v. Timothy C. Tyson et al., and (ii) Kenneth Lawson v. Timothy C. Tyson et al. These lawsuits, which were filed on October 27, 2006 and November 16, 2006, respectively, purport to assert derivative claims on our behalf against certain of our current and/or former officers and directors. The lawsuits assert claims for breach of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and violations of the California Corporations Code related to the purported backdating of employee stock options. The plaintiffs seek, among other things, damages, an accounting, the rescission of stock options, and a constructive trust over amounts acquired by the defendants who have exercised Valeant stock options. On January 16, 2007, the court issued an order consolidating the two cases before Judge Ronald L. Bauer. On February 6, 2007, the court issued a further order abating the Lawson action due to a procedural defect while the Pronko action proceeds to conclusion. The plaintiff in the Pronko action filed an amended complaint on February 6, 2008, which dismissed claims against eighteen defendants. The remaining defendants must respond to the amended complaint by March 17, 2008.

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

Argentina Antitrust Matter:  In July 2004, we were advised that the Argentine Antitrust Agency had issued a notice unfavorable to us in a proceeding against our Argentine subsidiary. The proceeding involves allegations that the subsidiary in Argentina abused a dominant market position in 1999 by increasing its price on Mestinon in Argentina and not supplying the market for approximately two months. The subsidiary filed documents with the agency offering an explanation justifying its actions, but the agency has now rejected the explanation. The agency is collecting evidence prior to issuing a new decision. Argentinean law permits a fine to be levied of up to $5,000,000 plus 20% of profits realized due to the alleged wrongful conduct. Based upon the size of the transactions alleged to have violated the law, we do not expect this matter to draw the maximum penalty.

Permax Product Liability Cases:  On February 8, 2007, we were served a complaint in a case captioned Kathleen M. O’Connor v. Eli Lilly & Company, Valeant Pharmaceuticals International, Amarin Corporation plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., and Athena Neurosciences, Inc., Case No. 07 L 47 in the Circuit Court of the 17th Judicial Circuit, Winnebago County, Illinois. This case, which has been removed to federal court in the Northern District of Illinois, alleges that the use of Permax for restless leg syndrome caused the plaintiff to have valvular heart disease, and as a result, she suffered damages, including extensive pain and suffering,

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emotional distress and mental anguish. Eli Lilly, holder of the right granted by the FDA to market and sell Permax in the United States, which right was licensed to Amarin and the source of the manufactured product, has also been named in the suit. Under an agreement between Valeant and Eli Lilly, Eli Lilly will bear a portion of the liability, if any, associated with this claim. Product liability insurance exists with respect to this claim. Although it is expected that the insurance proceeds will be sufficient to cover any material liability which might arise from this claim, there can be no assurance that defending against any future similar claims and any resulting settlements or judgments will not, individually or in the aggregate, have a material adverse affect on our consolidated financial position, results of operation or liquidity.

Former ICN Yugoslavia Employees:  In December 2003, sixteen former employees of ICN Yugoslavia filed a complaint in state court in Orange County, California. Plaintiffs allege that we breached a promise by Milan Panic, who allegedly offered plaintiffs full pay and benefits if they boycotted the management installed by the Yugoslavian government following its takeover of ICN Yugoslavia. Plaintiffs’ initial complaint and first amended complaint were both dismissed by the judge in March and October 2004, respectively. However, plaintiffs appealed and the Court of Appeals reversed the trial court’s dismissal. Plaintiffs filed their second amended complaint in January 2006, alleging only unjust enrichment and constructive fraud. The parties submitted this matter to binding arbitration. On December 28, 2007, the arbitrator ruled in favor of Valeant on key threshold legal issues. Plaintiffs have declined to file a motion for reconsideration and Valeant has requested that the arbitrator issue a final order.

Alfa Wasserman:  On December 29, 2005, Alfa Wassermann (“Alfa”) filed suit against our Spanish subsidiary in the Commercial Court of Barcelona, Spain, alleging that our Calcitonina Hubber Nasal 200 UI Monodosis product infringes Alfa’s European patent EP 363.876 (ES 2.053.905) and demanded that we cease selling our product in the Spanish market and pay damages for lost profits caused by competition in the amount of approximately 9 million Euros. We filed a successful counter-claim; however, Alfa has filed an appeal. The Court of Appeals held a hearing in February 2008 and a decision is expected in March or April 2008.

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

17.   Business Segments

We have three reportable specialty pharmaceutical segments comprising our pharmaceutical operations in North America, International and Europe, Middle East and Africa (EMEA). In addition, we have a research and development division. The segment reporting has been reclassified to conform to discontinued operations presentation for all periods presented. See Note 5 for discussion of discontinued operations.

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The following tables set forth the amounts of segment revenues, operating income, non-cash charges and capital expenditures for the years ended December 31, 2007, 2006 and 2005 (in thousands):

	2007			2006			2005
				(Restated)			(Restated)
Revenues
Specialty pharmaceuticals
North America	$	276,671		$	264,393		$	232,342
International		201,310			239,597			219,319
EMEA		307,789			277,572			280,208
Total specialty pharmaceuticals		785,770			781,562			731,869
Alliance revenues (including ribavirin royalties)		86,452			81,242			91,646
Consolidated revenues	$	872,222		$	862,804		$	823,515
Operating Income (Loss)
Specialty pharmaceuticals
North America		100,855			90,359			69,286
International		34,189			71,697			65,407
EMEA		55,700			45,822			35,937
		190,744			207,878			170,630
Corporate expenses		(75,525	)		(75,382	)		(54,738	)
Total specialty pharmaceuticals		115,219			132,496			115,892
Restructuring charges and asset impairment		(23,176	)		(138,181	)		(1,253	)
Gain on litigation settlement		—			51,550			—
Research and development		(16,728	)		(37,891	)		(38,491	)
Acquired IPR&D		—			—			(126,399	)
Consolidated segment operating income (loss)		75,315			7,974			(50,251	)
Interest income		17,792			12,610			13,169
Interest expense		(42,878	)		(43,726	)		(40,326	)
Other, net		1,060			1,152			(6,358	)
Income (loss) from continuing operations before provision for income taxes	$	51,289		$	(21,990	)	$	(83,766	)

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During the year ended December 31, 2007, one customer, McKesson Corporation, accounted for more than 10% of consolidated product sales. Sales to McKesson Corporation and its affiliates in the United States, Canada, and Mexico were $132,035,000 in the year ended December 31, 2007, representing 17% of our product sales.

	2007		2006		2005
Depreciation and Amortization
Specialty pharmaceuticals
North America	$	34,483	$	30,470	$	33,950
International		14,291		14,419		13,347
EMEA		24,071		21,963		30,112
		72,845		66,852		77,409
Corporate expenses		3,655		3,912		3,238
Total specialty pharmaceuticals		76,500		70,764		80,647
Research and development		11,468		14,829		16,704
Total	$	87,968	$	85,593	$	97,351
Capital Expenditures
Specialty pharmaceuticals
North America	$	3,731	$	8,898	$	3,279
International		11,309		3,580		8,401
EMEA		15,161		9,534		11,737
		30,201		22,012		23,417
Corporate expenses		2,021		17,738		19,659
Total specialty pharmaceuticals		32,222		39,750		43,076
Research and development		—		1,218		2,449
Total	$	32,222	$	40,968	$	45,525

Restructuring and asset impairment charges and IPR&D are not included in the applicable segments as management excludes these items in assessing the financial performance of these segments, primarily due to their non-operational nature. Stock and stock option compensation is considered a corporate cost since the amount of such charges depends on corporate-wide performance rather than the operating performance of any single segment.

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The following table sets forth the total assets and long-lived assets by segment as of December 31, 2007 and 2006 (in thousands):

	December 31,		December 31,
	2007		2006
Total Assets
North America	$	367,869	$	381,198
International		200,955		203,292
EMEA		493,452		514,600
Corporate		319,335		207,802
Research and Development Division		52,202		122,268
Discontinued operations		60,449		76,532
Total	$	1,494,262	$	1,505,692
Long-term Assets
North America	$	285,712	$	288,889
International		57,510		58,607
EMEA		221,596		201,420
Corporate		110,484		75,506
Research and Development Division		24,288		35,105
Total	$	699,590	$	659,527

The long-term assets table above excludes $226,000 in non-current assets of discontinued operations as of December 31, 2006.

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The following table summarizes sales by major product for the each of the last three years (dollar amounts in thousands). It includes any product with annualized sales of greater than $10,000,000 and currently promoted products with annualized sales of greater than $5,000,000. The table is categorized by therapeutic class:

Therapeutic Class/Product	2007		2006		2005
			(Restated)		(Restated)
Neurology
Mestinon(P)	$	53,012	$	47,625	$	43,535
Diastat AcuDial(P)		51,264		50,678		47,631
Cesamet(P)		30,173		18,985		10,009
Librax		17,170		14,835		18,159
Migranal(P)		13,534		11,592		12,949
Dalmane/Dalmadorm(P)		11,432		10,957		12,277
Tasmar(P)		10,262		6,534		5,829
Melleril(P)		8,206		6,431		3,068
Zelapar(P)		5,747		3,981		—
Other Neurology		66,677		63,033		57,431
Total Neurology		267,477		234,651		210,888
Dermatology
Efudix/Efudex(P)		71,714		78,336		60,177
Kinerase(P)		30,126		28,929		22,265
Dermatix(P)		14,043		10,139		9,187
Oxsoralen-Ultra(P)		12,377		10,527		9,365
Other Dermatology		39,059		42,023		38,252
Total Dermatology		167,319		169,954		139,246
Infectious Disease
Virazole(P)		14,350		16,552		16,547
Other Infectious Disease		19,813		20,144		21,459
Total Infectious Disease		34,163		36,696		38,006
Other therapeutic classes
Bedoyecta(P)		42,384		49,935		46,762
Solcoseryl(P)		23,749		18,916		18,983
Bisocard(P)		22,559		15,927		12,847
M.V. I. (multi-vitamin infusion)(P)		11,708		13,350		7,602
Nyal(P)		11,060		10,216		13,747
Espaven(P)		8,458		11,147		9,258
Protamin(P)		6,924		6,384		6,047
Other products		189,969		214,386		228,483
Total other therapeutic classes		316,811		340,261		343,729
Total product sales	$	785,770	$	781,562	$	731,869
Total Promoted Product sales	$	453,082	$	427,141	$	368,085

(P) –  Promoted Products with annualized sales of greater than $5,000,000.

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18.   License Agreements

Schering-Plough:  In 1995, we entered into an exclusive license and supply agreement with Schering-Plough (the “License Agreement”). Under the License Agreement, Schering-Plough licensed all oral forms of ribavirin for the treatment of chronic hepatitis C. The FDA granted Schering-Plough approval for Peg-Intron (pegylated interferon alfa-2b) for use in Combination Therapy with Rebetol for the treatment of chronic hepatitis C in patients with compensated liver disease who are at least 18 years of age. Schering-Plough markets the Combination Therapy in the United States, Europe, Japan, and many other countries around the world based on the U.S. and European Union regulatory approvals. Schering-Plough has launched a generic version of ribavirin. Under the license and supply agreement, Schering-Plough is obligated to pay us royalties for sales of their generic ribavirin.

In November 2000, we entered into an agreement that provides Schering-Plough with certain rights to license various products we may develop (the “2000 Schering-Plough Agreement”). Under the terms of the 2000 Schering-Plough Agreement, Schering-Plough has the option to exclusively license on a worldwide basis up to three compounds that we may develop for the treatment of hepatitis C on terms specified in the agreement. The option does not apply to taribavirin. The option is exercisable as to a particular compound at any time prior to the start of Phase II clinical studies for that compound. Once it exercises the option with respect to a compound, Schering-Plough is required to take over all developmental costs and responsibility for regulatory approval for that compound. Under the agreement, we would receive royalty revenues based on the sales of licensed products.

Under the terms of the 2000 Schering-Plough Agreement, we also granted Schering-Plough and an affiliate rights of first/last refusal to license compounds relating to the treatment of infectious disease (other than hepatitis C) or cancer or other oncology indications as well as rights of first/last refusal with respect to taribavirin (collectively, the “Refusal Rights”). Under the terms of the Refusal Rights, if we intend to offer a license or other rights with respect to any of these compounds to a third party, we are required to notify Schering-Plough. At Schering-Plough’s request, we are required to negotiate in good faith with Schering-Plough on an exclusive basis the terms of a mutually acceptable exclusive worldwide license or other form of agreement on commercial terms to be mutually agreed upon. If we cannot reach an agreement with Schering-Plough, we are permitted to negotiate a license agreement or other arrangement with a third party. Prior to entering into any final arrangement with the third party, we are required to offer substantially similar terms to Schering-Plough, which terms Schering-Plough has the right to match.

If Schering-Plough does not exercise its option or Refusal Rights as to a particular compound, we may continue to develop that compound or license that compound to other third parties. The 2000 Schering-Plough Agreement will terminate the later of 12 years from the date of the agreement or the termination of the 1995 License Agreement with Schering-Plough. The 2000 Schering-Plough Agreement was entered into as part of the resolution of claims asserted by Schering-Plough against us, including claims regarding our alleged improper hiring of former Schering-Plough research and development personnel and claims that we were not permitted to conduct hepatitis C research.

In January 2007, we executed a licensing agreement with Schering-Plough for the assignment and license of development and commercialization rights to pradefovir, which we licensed from Metabasis Therapeutics, Inc. (“Metabasis”). Schering-Plough’s license of these rights from us was negotiated pursuant to the 2000 Schering-Plough Agreement. Schering-Plough returned these rights to Metabasis Therapeutics, Inc. (“Metabasis”) in September 2007 after the results of a long-term preclinical study were released.

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VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19.   Alliance Revenue

We have reported the royalties received from the sale of ribavirin separately from our specialty pharmaceuticals product sales revenue since these royalties were first received in 1998. In 2007, we have begun presenting these royalty revenues within a new category of revenues, “alliance revenue.” The following table provides the details of our alliance revenue in 2007, 2006, and 2005, respectively (in thousands):

	2007		2006		2005
Ribavirin royalty	$	67,202	$	81,242	$	91,646
Licensing payment		19,200		—		—
Other		50		—		—
Total alliance revenue	$	86,452	$	81,242	$	91,646

We received a licensing payment of $19,200,000 in the first quarter of 2007 from Schering-Plough as a payment in the licensing of pradefovir. Alliance revenue for the year ended December 31, 2007 also included a $50,000 payment from an unrelated third party for a license to certain intellectual property assets.

In June 2007, we revised our estimate of ribavirin royalties receivable from Schering-Plough, to incorporate certain historical data and payment patterns. This revision increased the royalties recorded in the year ended December 31, 2007 by $246,000.

20.   Subsequent Events

In September 2007, we decided to divest our Infergen product rights and we sold these rights to Three Rivers Pharmaceuticals, LLC on January 14, 2008. We will record a gain in this transaction of approximately $16,000,000 in the first quarter of 2008.

We announced on February 4, 2008 that our board of directors had appointed J. Michael Pearson to the position of chief executive officer and chairman of the board of directors effective February 1, 2008, the date of the resignation of our former chief executive officer, Timothy C. Tyson. Robert A. Ingram, who had served as chairman until Mr. Tyson’s resignation, remains on our board of directors, serving as lead director. In connection with the resignation of Mr. Tyson, we have incurred employment contract termination costs of $3,676,000 which will be expensed in the first quarter of 2008. Additionally, the vesting of Mr. Tyson’s stock compensation awards was accelerated concurrent with his resignation, resulting in an accounting charge of $4,627,000 which will also be recorded in the first quarter of 2008.

In December 2007 we signed an agreement with Invida to sell certain subsidiaries and product rights in Asia, in a transaction that includes certain Valeant subsidiaries, branch offices, and commercial rights in the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This transaction also includes certain product rights in Japan. In 2007, we recognized $3,968,000 in contract termination and transaction costs as restructuring charges in support of this transaction. We closed this transaction on March 3, 2008. The assets related to this transaction have been classified as “held for sale” in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in December 2007. We received proceeds of $37,855,000 in the closing of this transaction and anticipate recording a gain of approximately $30,000,000.

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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

			Additions
	Balance at		Charged to		Charged to						Balance
	Beginning		Costs and		Other						at End
	of Year		Expenses		Accounts			Deductions			of Year
	(In thousands)
Year ended December 31, 2007
Allowance for doubtful accounts	$	7,014	$	6,082	$	481		$	(649	)	$	12,928
Allowance for inventory obsolescence	$	14,297	$	12,192	$	4,895		$	(12,556	)	$	18,828
Deferred tax asset valuation allowance	$	161,713	$	60,721	$	(62,724	)	$	—		$	159,710
Year ended December 31, 2006
Allowance for doubtful accounts	$	5,485	$	1,641	$	478		$	(590	)	$	7,014
Allowance for inventory obsolescence	$	12,775	$	12,430	$	2,023		$	(12,931	)	$	14,297
Deferred tax asset valuation allowance	$	148,100	$	28,106	$	—			(14,493	)	$	161,713
Year ended December 31, 2005
Allowance for doubtful accounts	$	6,014	$	598	$	(420	)	$	(707	)	$	5,485
Allowance for inventory obsolescence	$	13,932	$	10,145	$	1,184		$	(12,486	)	$	12,775
Deferred tax asset valuation allowance	$	107,225	$	56,181	$	—			(15,306	)	$	148,100

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Background of Restatement

As disclosed in the Explanatory Note on page 1 of this Form 10-K, we announced on March 3, 2008 that upon recommendation of the Finance and Audit Committee of the Board of Directors (the “FAC”), on March 1, 2008 the Board of Directors determined that certain of the Company’s annual and interim financial statements, earnings press releases and similar communications previously issued by the Company should no longer be relied upon. During the preparation process for this 2007 annual report on Form 10-K, we identified certain accounting errors (collectively “Errors”) related to certain foreign operations which primarily arose during the period January 1, 2002 to September 30, 2007 and, in aggregate, resulted in a net charge to income from continuing operations before income taxes of $2,090,000 to correct the cumulative effect of the Errors in the fourth quarter of 2007. These included errors impacting annual periods prior to 2007 with a cumulative net charge to income from continuing operations before income taxes of $3,851,000 as of December 31, 2006. The Errors also included items originating in the first, second and third quarters of 2007 with a net benefit to income from continuing operations before income taxes of $1,761,000. These Errors have been determined to be, in the aggregate, material to the quarter and year ended December 31, 2007 and to certain prior periods including the year ended December 31, 2006 and therefore we are restating our results for the years ended December 31, 2003, 2004, 2005 and 2006. The Errors and the cumulative net effect of the corrections through December 31, 2006 and for the nine months ended September 30, 2007 are:

i. Increase in reserves for anticipated product returns based on historical trends and for certain credit memos in Latin America, the cumulative effect of which is a reduction in revenue of $3,953,000 and certain other adjustments of $127,000 through December 31, 2006 and $1,120,000 for the nine months ended September 30, 2007;

116

ii. Decrease in revenues associated with sales to certain customers in Italy where preexisting rights of return became known in the fourth quarter of 2007, the cumulative effect of which is a reduction of revenues of $290,000 through December 31, 2006 and $1,550,000 for the nine months ended September 30, 2007;

iii. Decrease in costs of goods sold related to bookkeeping errors in recording inventory costing and manufacturing variances in the UK and France, the cumulative effect of which is a reduction in cost of goods sold and a corresponding increase in gross profit of $4,710,000 for the nine months ended September 30, 2007, with no effect prior to January 1, 2007;

iv. Changes in pension expense in UK, Netherlands, Switzerland and Germany resulting from incorrect application of Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, the cumulative effect of which is a decrease in general and administrative expenses of $519,000 through December 31, 2006 and a charge to general and administrative expenses of $279,000 for the nine months ended September 30, 2007; and

v. Increase in income tax expense due to correction of deferred income taxes in certain foreign locations resulting in a cumulative decrease in income of $825,000 through December 31, 2006. Additionally income tax expense is reduced by $1,331,000 through December 31, 2006 and increased by $611,000 for the nine months ended September 30, 2007, resulting from the income tax effects of the pre-tax adjustments described in i.-iv. above.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures. Based on their evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2007 because of the material weakness described below.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our CEO and CFO, conducted an evaluation of the effectiveness, as of December 31, 2007, of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As of December 31, 2007, we did not maintain a sufficient complement of personnel in our foreign locations with the appropriate skills, training and experience to identify and address the application of generally accepted accounting principles and effective controls with respect to locations undergoing change or experiencing staff turnover. Further, the monitoring controls over accounting for pension plans and product returns in foreign locations did not operate at a sufficient level of precision to identify the accounting errors in the foreign operations on a timely basis and did not include a process for obtaining corroborating information to support the analysis and conclusions regarding individually significant transactions. This control deficiency resulted in the restatement of the Company’s

117

consolidated financial statements as of and for the years ended December 31, 2006, 2005, 2004 and 2003 and for each of the three quarters in the period ended September 30, 2007 affecting the completeness and accuracy of revenues, accounts receivable, cost of goods sold, inventory, general and administrative expenses, cash and cash equivalents, marketable securities, other assets, income taxes, deferred taxes, other liabilities, other comprehensive income, discontinued operations, and accumulated deficit. Additionally, this control deficiency could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness in our internal control over financial reporting.

Because of this material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2007, based on criteria in Internal Control — Integrated Framework issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this annual report on Form 10-K.

Remediation Plan

We are in the process of identifying and implementing a plan to address the material weakness in internal control over financial reporting described above. Elements of our remediation plan are expected to be accomplished over time. We are taking the following actions to remediate the material weakness described above:

•  We have engaged professional actuarial and accounting consultants to review our calculation of assets and liabilities under and accounting for our foreign pension plans. We are also working to develop modified controls with regard to our accounting for pension obligations.

•  We have designed and commenced implementation of enhancements to our accounting for product returns and credit memos in foreign markets.

•  We have reviewed the qualifications and performance of our accounting staff in key roles in our foreign locations and identified some critical roles in certain foreign markets where accounting staff will be retrained or new accounting staff will be recruited. We have assigned qualified accounting staff from Corporate and our North American offices to review accounting procedures in certain foreign countries and have begun to enhance our accounting staff in various foreign locales.

•  We have modified our revenue recognition procedures in Italy and other locations in order to ensure that, when required by specific circumstances, we recognize revenue on a cash basis.

•  We have implemented revised review procedures over tax accounting.

In addition, we are undertaking a comprehensive strategic review. This is expected to involve a significant reduction in our geographic footprint and product focus, which will have the effect of reducing the number of foreign locations where remediation actions are required.

Management has developed a plan for the implementation of the remediation procedures described above (to the extent not already implemented), which has been presented to our Finance and Audit Committee. This committee will monitor our implementation of remediation measures. We believe that the controls that we are implementing will improve the effectiveness of our internal control over financial reporting. As we improve our internal control over financial reporting and implement remediation measures, we may determine to supplement or modify the remediation measures described above.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information

None.

118

PART III

Item 10.   Directors and Executive Officers of the Registrant

The information required under this Item is set forth in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders (the “Proxy Statement”) and is incorporated by reference.

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting controller. The code of ethics has been posted on our internet website found at www.valeant.com. We intend to satisfy disclosure requirements regarding amendments to, or waivers from, any provisions of its code of ethics on its website.

Item 11.   Executive Compensation

The information required under this Item is set forth in the Proxy Statement and is incorporated by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required under this Item is set forth in the Proxy Statement and is incorporated by reference.

Item 13.   Certain Relationships and Related Transactions

The information required under this Item is set forth in the Proxy Statement and is incorporated by reference.

Item 14.   Principal Accounting Fees and Services

The information required under this Item is set forth in the Proxy Statement and is incorporated by reference.

119

PART IV

Item 15.   Exhibits and Financial Statement Schedules

1. Financial Statements

Financial Statements of the Registrant are listed in the index to Consolidated Financial Statements and filed under Item 8, “Financial Statements and Supplementary Data,” in this Form 10-K.

2. Financial Statement Schedule

Financial Statement Schedule of the Registrant is listed in the index to Consolidated Financial Statements and filed under Item 8, “Financial Statements and Supplementary Data,” in this Form 10-K.

Schedules not listed have been omitted because the information required therein is not applicable or is shown in the financial statements and the notes thereto.

3. Exhibits

Exhibit
Number			Description
	3	.1	Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2003, which is incorporated herein by reference.
	3	.2	Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated October 6, 2004, which is incorporated herein by reference.
	3	.3	Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006, previously filed as Exhibit 3.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007, which is incorporated herein by reference.
	3	.4	Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated February 25, 2008, which is incorporated herein by reference.
	4	.1	Form of Rights Agreement, dated as of November 2, 1994, between the Registrant and American Stock Transfer & Trust Company, as trustee, previously filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form 8-A, dated November 10, 1994, which is incorporated herein by reference.
	4	.2	Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, dated October 5, 2004, which is incorporated herein by reference.
	10	.1†	Valeant Pharmaceuticals International 1992 Non-Qualified Stock Plan, previously filed as Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, which is incorporated herein by reference.
	10	.2†	Valeant Pharmaceuticals International 1994 Stock Option Plan, previously filed as Exhibit 10.30 to the Registrant’s Form 10-K for the year ended December 31, 1995, which is incorporated herein by reference.
	10	.3†	Valeant Pharmaceuticals International 1998 Stock Option Plan, previously filed as Exhibit 10.20 to the Registrant’s Form 10-K for the year ended December 31, 1998, which is incorporated herein by reference.
	10	.4†	Valeant Pharmaceuticals International 2003 Equity Incentive Plan, previously filed as Annex B to the Proxy Statement filed on Schedule 14A on April 25, 2003, which is incorporated herein by reference.
	**10	.5	Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd. dated July 28, 1995 previously filed as Exhibit 10 to the Registrant’s Amendment 3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, which is incorporated herein by reference.
	**10	.6	Amendment to Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd., previously filed as Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.

120

Exhibit
Number			Description
	**10	.7	Amendment to Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd. Dated July 16, 1998, previously filed as Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.
	**10	.8	Agreement among Schering Corporation, Valeant Pharmaceuticals International and Ribapharm Inc. dated as of November 14, 2000, previously filed as Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.
	**10	.9	Agreement among Valeant Pharmaceuticals International, Ribapharm Inc., Hoffmann-La Roche, and F. Hoffmann-La Roche Ltd, dated January 3, 2003, previously filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, which is incorporated herein by reference.
	10	.10	Indenture, dated as of December 12, 2003, among Valeant Pharmaceuticals International as issuer, Ribapharm Inc. as co-obligor and The Bank of New York as Trustee, previously filed as Exhibit 4.1 to the Registrant’s Registration Statement No. 333-112906 on Form S-4 and incorporated herein by reference.
	10	.11	Form of 7.0% Senior Notes due 2011, previously filed as Exhibit A-1 to Exhibit 4.1 to the Registrant’s Registration Statement No. 333-112906 on Form S-4 and incorporated herein by reference.
	10	.12	Indenture, dated as of November 19, 2003, among Valeant Pharmaceuticals International as issuer, Ribapharm Inc. as co-obligor and The Bank of New York as Trustee, previously filed as to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated by reference.
	10	.13	Form of 3.0% Convertible Subordinated Notes due 2010, previously filed as Exhibit A-1 to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated herein by reference.
	10	.14	Form of 4.0% Convertible Subordinated Notes due 2013, previously filed as Exhibit A-2 to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated herein by reference.
	10	.15†	Valeant Pharmaceuticals International 2003 Employee Stock Purchase Plan, previously filed as Annex C to the Proxy Statement filed on Schedule 14A on April 25, 2003, which is incorporated herein by reference.
	10	.16†	Agreement between Valeant Pharmaceuticals International and Bary G. Bailey, dated October 22, 2002, previously filed as Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, as amended by Form 10-K/A, which is incorporated herein by reference.
	10	.17†	Amended and Restated Executive Employment Agreement between Valeant Pharmaceuticals International and Timothy C. Tyson, dated March 21, 2005, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A dated March 25, 2005, which is incorporated herein by reference.
	10	.18†	Form of Executive Severance Agreement between Valeant Pharmaceuticals International and each of the following persons: Eileen C. Pruette (entered into on April 22, 2005), Charles Bramlage (entered into on June 16, 2005) and Wesley Wheeler (entered into on June 16, 2005), previously filed, with respect to Ms. Pruette, as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 27, 2005, which is incorporated herein by reference, and previously filed, with respect to Messrs. Bramlage and Wheeler, as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 16, 2005, which is incorporated herein by reference.
	10	.19	Agreement and Plan of Merger among Valeant Pharmaceuticals International, BW Acquisition Sub, Inc. and Xcel Pharmaceuticals, Inc. previously filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated February 1, 2005, which is incorporated herein by reference.
	**10	.20	Asset Purchase Agreement, dated as of January 22, 2004, by and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co. KG., previously filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, which is incorporated herein by reference.
	10	.21	Amended and Restated Diastat Asset Purchase Agreement, dated March 31, 2001, by and among Xcel Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc. and Elan Pharma International Limited, previously filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, which is incorporated herein by reference.

121

Exhibit
Number			Description
	10	.22†	Valeant Pharmaceuticals International 2006 Equity Incentive Plan previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on May 25, 2006, which is incorporated herein by reference.
	10	.23†	Form of Restricted Stock Unit Award Agreement under the 2003 Equity Incentive Plan, previously filed as Exhibit 99.1 to the Current Report on Form 8-K filed on June 27, 2006, which is incorporated herein by reference.
	10	.24†	Description of Registrant’s Executive Incentive Plan, previously described in Item 5.02 of Registrant’s Current Report on Form 8-K, dated March 28, 2007, which is incorporated herein by reference.
	10	.25†	Form of Restricted Stock Unit Award Grant Notice for Directors under the 2006 Equity Incentive Plan, previously filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007, which is incorporated herein by reference.
	10	.26†	Form of Restricted Stock Unit Award Agreement for Directors under the 2006 Equity Incentive Plan, previously filed as Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007, which is incorporated herein by reference.
	**10	.27	Asset Purchase Agreement dated December 19, 2007 between Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.
	**10	.28	Side Letter dated January 11, 2008 between Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.
	10	.29†	Employment Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and J. Michael Pearson, previously filed as of Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.30†	Separation Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and Timothy C. Tyson, previously filed as of Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.31†	Release Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and Timothy C. Tyson, previously filed as of Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.32†	Separation and Release Agreement, dated as of December 13, 2007, between Valeant Pharmaceuticals International and Wesley P. Wheeler.
	21		Subsidiaries of the Registrant.
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	32		Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.

*	None of the other indebtedness of the Registrant exceeds 10% of its total consolidated assets. The Registrant will furnish copies of the instruments relating to such other indebtedness upon request.
**	Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
†	Management contract or compensatory plan or arrangement.

122

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Valeant Pharmaceuticals International

By  /s/  J. Michael Pearson

J. Michael Pearson

Chairman and Chief Executive Officer

Date: March 17, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

	Name	Title	Date
/s/  J. Michael Pearson J. Michael Pearson		Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	Date: March 17, 2008
/s/  Peter J. Blott Peter J. Blott		Executive Vice President and Chief Financial Officer (Principal Financial Officer)	Date: March 17, 2008
/s/  Robert A. Ingram Robert A. Ingram		Lead Director	Date: March 17, 2008
/s/  Richard H. Koppes Richard H. Koppes		Director	Date: March 17, 2008
/s/  Lawrence N. Kugelman Lawrence N. Kugelman		Director	Date: March 17, 2008
/s/  Theo Melas-Kyriazi Theo Melas-Kyriazi		Director	Date: March 17, 2008
/s/  G. Mason Morfit G. Mason Morfit		Director	Date: March 17, 2008
/s/  Norma A. Provencio Norma A. Provencio		Director	Date: March 17, 2008

123

EXHIBIT INDEX

Exhibit
Number			Description
	3	.1	Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2003, which is incorporated herein by reference.
	3	.2	Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated October 6, 2004, which is incorporated herein by reference.
	3	.3	Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006, previously filed as Exhibit 3.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007, which is incorporated herein by reference.
	3	.4	Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated February 25, 2008, which is incorporated herein by reference.
	4	.1	Form of Rights Agreement, dated as of November 2, 1994, between the Registrant and American Stock Transfer & Trust Company, as trustee, previously filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form 8-A, dated November 10, 1994, which is incorporated herein by reference.
	4	.2	Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, dated October 5, 2004, which is incorporated herein by reference.
	10	.1†	Valeant Pharmaceuticals International 1992 Non-Qualified Stock Plan, previously filed as Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, which is incorporated herein by reference.
	10	.2†	Valeant Pharmaceuticals International 1994 Stock Option Plan, previously filed as Exhibit 10.30 to the Registrant’s Form 10-K for the year ended December 31, 1995, which is incorporated herein by reference.
	10	.3†	Valeant Pharmaceuticals International 1998 Stock Option Plan, previously filed as Exhibit 10.20 to the Registrant’s Form 10-K for the year ended December 31, 1998, which is incorporated herein by reference.
	10	.4†	Valeant Pharmaceuticals International 2003 Equity Incentive Plan, previously filed as Annex B to the Proxy Statement filed on Schedule 14A on April 25, 2003, which is incorporated herein by reference.
	**10	.5	Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd. dated July 28, 1995 previously filed as Exhibit 10 to the Registrant’s Amendment 3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, which is incorporated herein by reference.
	**10	.6	Amendment to Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd., previously filed as Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.
	**10	.7	Amendment to Exclusive License and Supply Agreement between Valeant Pharmaceuticals International and Schering-Plough Ltd. Dated July 16, 1998, previously filed as Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.
	**10	.8	Agreement among Schering-Plough Corporation, Valeant Pharmaceuticals International and Ribapharm Inc. dated as of November 14, 2000, previously filed as Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Form 10-K/A, which is incorporated herein by reference.
	**10	.9	Agreement among Valeant Pharmaceuticals International, Ribapharm Inc., Hoffmann-La Roche, and F. Hoffmann-La Roche Ltd, dated January 3, 2003, previously filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, which is incorporated herein by reference.

124

Exhibit
Number			Description
	10	.10	Indenture, dated as of December 12, 2003, among Valeant Pharmaceuticals International as issuer, Ribapharm Inc. as co-obligor and The Bank of New York as Trustee, previously filed as Exhibit 4.1 to the Registrant’s Registration Statement No. 333-112906 on Form S-4 and incorporated herein by reference.
	10	.11	Form of 7.0% Senior Notes due 2011, previously filed as Exhibit A-1 to Exhibit 4.1 to the Registrant’s Registration Statement No. 333-112906 on Form S-4 and incorporated herein by reference.
	10	.12	Indenture, dated as of November 19, 2003, among Valeant Pharmaceuticals International as issuer, Ribapharm Inc. as co-obligor and The Bank of New York as Trustee, previously filed as to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated by reference.
	10	.13	Form of 3.0% Convertible Subordinated Notes due 2010, previously filed as Exhibit A-1 to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated herein by reference.
	10	.14	Form of 4.0% Convertible Subordinated Notes due 2013, previously filed as Exhibit A-2 to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 25, 2003 and incorporated herein by reference.
	10	.15†	Valeant Pharmaceuticals International 2003 Employee Stock Purchase Plan, previously filed as Annex C to the Proxy Statement filed on Schedule 14A on April 25, 2003, which is incorporated herein by reference.
	10	.16†	Agreement between Valeant Pharmaceuticals International and Bary G. Bailey, dated October 22, 2002, previously filed as Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, as amended by Form 10-K/A, which is incorporated herein by reference.
	10	.17†	Amended and Restated Executive Employment Agreement between Valeant Pharmaceuticals International and Timothy C. Tyson, dated March 21, 2005, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A dated March 25, 2005, which is incorporated herein by reference.
	10	.18†	Form of Executive Severance Agreement between Valeant Pharmaceuticals International and each of the following persons: Eileen C. Pruette (entered into on April 22, 2005), Charles Bramlage (entered into on June 16, 2005) and Wesley Wheeler (entered into on June 16, 2005), previously filed, with respect to Ms. Pruette, as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 27, 2005, which is incorporated herein by reference, and previously filed, with respect to Messrs. Bramlage and Wheeler, as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 16, 2005, which is incorporated herein by reference.
	10	.19	Agreement and Plan of Merger among Valeant Pharmaceuticals International, BW Acquisition Sub, Inc. and Xcel Pharmaceuticals, Inc. previously filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated February 1, 2005, which is incorporated herein by reference.
	**10	.20	Asset Purchase Agreement, dated as of January 22, 2004, by and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co. KG., previously filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, which is incorporated herein by reference.
	10	.21	Amended and Restated Diastat Asset Purchase Agreement, dated March 31, 2001, by and among Xcel Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc. and Elan Pharma International Limited, previously filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, which is incorporated herein by reference.
	10	.22†	Valeant Pharmaceuticals International 2006 Equity Incentive Plan previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on May 25, 2006, which is incorporated herein by reference.
	10	.23†	Form of Restricted Stock Unit Award Agreement under the 2003 Equity Incentive Plan, previously filed as Exhibit 99.1 to the Current Report on Form 8-K filed on June 27, 2006, which is incorporated herein by reference.
	10	.24†	Description of Registrant’s Executive Incentive Plan, previously described in Item 5.02 of Registrant’s Current Report on Form 8-K, dated March 28, 2007, which is incorporated herein by reference.

125

Exhibit
Number			Description
	10	.25†	Form of Restricted Stock Unit Award Grant Notice for Directors under the 2006 Equity Incentive Plan, previously filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007, which is incorporated herein by reference.
	10	.26†	Form of Restricted Stock Unit Award Agreement for Directors under the 2006 Equity Incentive Plan, previously filed as Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007, which is incorporated herein by reference.
	**10	.27	Asset Purchase Agreement dated December 19, 2007 between Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.
	**10	.28	Side Letter dated January 11, 2008 between Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.
	10	.29†	Employment Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and J. Michael Pearson, previously filed as of Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.30†	Separation Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and Timothy C. Tyson, previously filed as of Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.31†	Release Agreement dated as of February 1, 2008 between Valeant Pharmaceuticals International and Timothy C. Tyson, previously filed as of Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference.
	10	.32†	Separation and Release Agreement, dated as of December 13, 2007, between Valeant Pharmaceuticals International and Wesley P. Wheeler.
	21		Subsidiaries of the Registrant.
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	32		Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.

*	None of the other indebtedness of the Registrant exceeds 10% of its total consolidated assets. The Registrant will furnish copies of the instruments relating to such other indebtedness upon request.
**	Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
†	Management contract or compensatory plan or arrangement.

126

EX-10.27

EXHIBIT 10.27

*** Text Omitted and Filed Separately
with the Securities and Exchange Commission
Confidential Treatment Request
Under C.F.R. Sections 200.80(b)(4)
and 240.24b-2

ASSET PURCHASE AGREEMENT

by and between

THREE RIVERS PHARMACEUTICALS, LLC

(as Buyer)

and

VALEANT PHARMACEUTICALS NORTH AMERICA

(as Seller)

December 19, 2007

TABLE OF CONTENTS

EXHIBITS

Exhibit A — Form of Transition Services Agreement

Exhibit B — Form of Bill of Sale and Assignment

Exhibit C — Form of Assignment and Assumption of Assumed Liabilities and Assumed Contracts

Exhibit D — Form of Patent Assignment

Exhibit E — Form of Trademark Assignment

Exhibit F — Non-Foreign Affidavit

ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT (together with all annexes, exhibits, schedules and other documents attached hereto, hereinafter referred to as the (“Agreement”) dated as of December 19, 2007 (the “Execution Date”) is made by and between Valeant Pharmaceuticals North America, a Delaware corporation (“Seller”), and Three Rivers Pharmaceuticals, LLC, a Pennsylvania limited liability company (“Buyer”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 9.1 hereof.

RECITALS

     WHEREAS, Seller is a global specialty pharmaceutical company that develops, manufactures and markets pharmaceutical products, primarily in the areas of neurology, dermatology and infectious disease;

     WHEREAS, Buyer is a United States-based specialty pharmaceutical company focused on the manufacture, sales and marketing of products for infectious disease;

     WHEREAS, Seller is the owner of certain finished pharmaceutical products containing interferon alphacon-1, including Infergen (the “Product”) and Product-related rights;

     WHEREAS, Seller desires to sell certain assets related to the Product and Product-related rights to Buyer, and Buyer desires to purchase such assets and Product-related rights from Seller, on the terms and conditions set forth herein;

     WHEREAS, Seller and Buyer desire to enter into an agreement effective as of the Effective Time in substantially the form attached hereto as Exhibit A (the “Transition Services Agreement”) for the purpose of Seller providing Buyer with certain limited transition services following the Closing for the term set forth in the Transition Services Agreement; and

     NOW THEREFORE, for and in consideration of the premises, mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, and intending to be legally bound, the parties agree as follows:

ARTICLE I

ASSETS, LIABILITIES AND PURCHASE PRICE

     1.1 Purchase and Sale of Transferred Assets.

          (a) At the Effective Time, upon the terms and subject to the conditions set forth in this Agreement and in consideration of the Purchase Price paid to Seller by Buyer, Seller will grant, sell, transfer, convey, assign and deliver (“Transfer”) to Buyer, and Buyer will purchase, acquire and accept from Seller, all of Seller’s rights, title and interest in, to and under all of the following assets, rights and contracts wherever located, tangible or intangible, owned or held primarily for use in, or primarily used in connection with, the Product (such Transferred assets

1.

hereinafter collectively referred to as the “Transferred Assets”), but excluding the Excluded Assets, free and clear of all Encumbrances (other than Permitted Encumbrances):

               (i) as primarily related to the Product in the Territory and/or Seller’s operation of the Product Business, all material permits, licenses, certificates (including, without limitation, need and safety certificates), approvals, registrations, authorizations, Product Registrations, filings, exemptions, variances, authorizations and similar rights issued by any Governmental or Regulatory Authority to Seller that are necessary for the manufacture, use, storage, import, transport, marketing, distribution and/or sale of the Product (the “Product Regulatory Approvals”) including, without limitation, the Product Regulatory Approvals set forth on Section 3.9(a) of the Seller Disclosure Letter;

               (ii) to the extent primarily used in connection with the Product Business, all advertising, promotional, selling and marketing materials in written or electronic form existing as of the Closing and owned, controlled or otherwise in the possession of Seller (collectively, the “Promotional Materials”);

               (iii) the Amgen License Rights, the Roche/Genentech License Agreement, Product Copyrights, Product Domains, Product Know-How, Product Patents, Product Trademarks, and Product Trade Dress (collectively, the “Product Intellectual Property”);

               (iv) subject to Section 1.8, all rights in, to and under the Contracts to which Seller or an Affiliate thereof is a party that are listed on Section 1.1(a)(iv) of the Seller Disclosure Letter (collectively, the “Assumed Contracts”);

               (v) copies of all material files, correspondence with any Governmental or Regulatory Authority, material data, reports, books and records owned or controlled by Seller, in whatever media retained or stored (electronic, tangible or otherwise), to the extent relating to the Product, the Product Business, the Transferred Assets or the Assumed Liabilities, including any relevant pricing lists, customer lists, vendor lists, mailing lists, financial data, research and development files, marketing materials, regulatory files, records and other information required to be maintained by any Governmental or Regulatory Authority, adverse event reports, files and materials relating to outcomes of adverse events including any correspondence with the FDA and reports filed with the FDA, clinical studies, including all reports and study records developed during clinical studies and all documentation relating to the Product Intellectual Property, copies (to the extent received from Amgen, BI Austria, Kenco or any other Third Party) of all material (i) reports of FDA Form 483 inspection observations, (ii) establishment inspection reports, (iii) warning letters and (iv) other documents that assert ongoing lack of compliance in any material respect with any Laws or regulatory requirements (including those of the FDA), relating to the Product or the conduct of the Product Business, but excluding any such items to the extent that any applicable Law or contractual obligation to which Seller is bound prohibits their transfer so long as Seller provides Buyer with a list of such items that may not be transferred; provided, however, that notwithstanding the foregoing, prior to delivering or making the

2.

Product Records available to Buyer, Seller shall be entitled to redact from the Product Records any information that does not relate to the Product Business (collectively, the “Product Records”). Notwithstanding the foregoing, the parties expressly agree and acknowledge that the Product Records to be delivered by Seller to Buyer pursuant to this Agreement will not include and Seller shall not be required to disclose to Buyer information that Seller determines, using reasonable discretion, is subject to attorney client privilege;

               (vi) all of the rights, title and interest to all Product stored at the Seller’s dedicated facility operated pursuant to the Kenco Agreement and listed in Section 1.1(a)(vi) of the Seller Disclosure Letter (the “Inventory”); provided, however, that Buyer may, by notice to Seller delivered within 30 Business Days of the Closing Date, refuse to accept any or all of such Inventory and Seller shall be responsible for all disposal costs related to any such Inventory not accepted by Buyer (the “Inventory Disposal Costs”);

               (vii) The [...***...] more specifically identified in Section 1.1(a)(vii) of the Seller Disclosure Letter.

          (b) Transfer of Other Intellectual Property. At the Effective Time, on the terms and subject to the conditions of this Section 1.1(b), Seller shall convey, transfer, assign and deliver to Buyer, and Buyer shall acquire from Seller, all of Seller’s rights, title, and interest, if any, in and to the Other Intellectual Property provided that [...***...]. Further, Buyer acknowledges that the Other Intellectual Property is not part of the Transferred Assets, that Buyer may not assert any claim whatsoever against Seller with respect thereto, and that the representations, warranties, covenants, indemnities and other agreements contained elsewhere in this Agreement do not apply and the Buyer shall not be entitled to claim the benefits thereof in respect thereto. At the sole cost and expense of Buyer, Seller will use commercially reasonable efforts to provide Buyer with such assistance as Buyer may reasonably request to transfer related files and to perfect title to the Other Intellectual Property.

     1.2 Excluded Assets.

          (a) Excluded Assets. Notwithstanding anything in Section 1.1 to the contrary, Seller shall retain all right, title and interest to, and shall not Transfer to Buyer, the Excluded Assets, and Buyer is not purchasing, taking delivery of, or acquiring any rights whatsoever to the Excluded Assets from Seller.

***Confidential Treatment Requested

3.

          (b) Intellectual Property. Buyer expressly acknowledges that, other than the Product Intellectual Property and the explicit rights to use the Seller Marks for the transition period pursuant to Section 5.18 hereof, Buyer is not acquiring any rights whatsoever, whether express or implied, to any Intellectual Property owned or controlled by Seller, including the “Valeant” name or any variations and derivatives thereof and any other logos or trademarks of Seller not included in the Product Intellectual Property.

     1.3 Assumed Liabilities. As of the Effective Time and upon the terms and subject to the conditions set forth in this Agreement, Buyer shall assume and agree to pay, perform or otherwise discharge, in accordance with their respective terms and subject to the respective conditions thereof, only the following Liabilities (collectively, the “Assumed Liabilities”):

          (a) Any Liability arising after the Effective Time under any Assumed Contract (other than any Liability arising out of or relating to a breach of such Assumed Contract which occurred prior to the Effective Time or any obligation required by any Assumed Contract to be performed prior to the Effective Time);

          (b) all Liabilities of Buyer for Transfer Taxes pursuant to Section 2.4(a) hereof;

          (c) the obligation to acquire all bulk active pharmaceutical ingredients or nude vials related to the Product manufactured or being manufactured by or on behalf of Amgen and in Amgen’s possession or control, all as set forth in Section 1.3(c) of the Seller Disclosure Letter (the “Amgen Materials”), other than the Excluded Amgen Materials;

          (d) the obligation to acquire all bulk active pharmaceutical ingredients related to the Product in the possession or under control of BI Austria identified in Section 1.3(d) of the Seller Disclosure Letter (the “BI Materials”), subject to Section 5.15(b) hereof, other than the Excluded BI Materials; and

          (e) any other Liabilities of Seller specifically set forth on Section 1.3(e) of the Seller Disclosure Letter.

For avoidance of doubt, nothing in this Section 1.3 is intended to, or shall be interpreted to, limit or otherwise reduce the Liabilities of Buyer as they may occur and/or exist after the Effective Time by virtue of Buyer’s ownership of the Transferred Assets or operation of the Product Business (including with respect to all Taxes for the Post-Closing Period), but rather, this Section 1.3 is solely intended to identify and provide for the assumption by Buyer of those Liabilities of Seller that are specifically assumed by Buyer hereunder and which, but for such assumption, would remain Liabilities of Seller.

     1.4 Excluded Liabilities.

          (a) Buyer and Seller each hereby acknowledge and agree that, other than the Assumed Liabilities, Buyer shall not be responsible for, assume, or agree to or be obligated to pay, satisfy, perform or otherwise discharge any other Liabilities of Seller (or any predecessor of Seller or any prior owner of all or part of the Product Business or Transferred Assets) or any Liability of the Product Business which arose prior to the Effective Time, including, without limitation, any Excluded Liabilities (including those set forth on Section 1.4(a) of the Seller Disclosure Letter).

4.

Buyer and Seller each acknowledge that in no event shall the foregoing sentence be construed to limit Buyer’s rights and obligations under Article VIII of this Agreement. Such Excluded Liabilities shall include all claims, actions, litigations and proceedings relating to any or all of the foregoing and all costs and expenses incurred therein.

          (b) Seller shall not be responsible for, assume, or be obligated to pay, perform or otherwise discharge any Liabilities of Buyer including without limitation, the Assumed Liabilities and Liabilities incurred by Buyer with respect to the Transferred Assets or the Product Business following the Effective Time. Buyer and Seller each acknowledge that in no event shall the foregoing sentence be construed to limit Seller’s rights and obligations under Article VIII of this Agreement.

     1.5 Purchase Price. In addition to the assumption by Buyer of the Assumed Liabilities pursuant to Section 1.3, in full consideration for the Transfer of the Transferred Assets as provided for herein, Buyer will pay to Seller the sum of Ninety-One Million Three Hundred Thousand United States Dollars ($91,300,000) (the “Purchase Price”). The Purchase Price shall be paid as follows:

          (a) On the Closing Date, Buyer shall deliver or cause to be delivered by electronic transfer of immediately available funds to an account designated by Seller to Buyer in writing at least two (2) Business Days prior to the Closing Date, the sum of [...***...] (the “Closing Payment”).

          (b) Subject to Section 5.15(b) hereof, on the date that is [...***...], Buyer shall deliver or cause to be delivered by electronic transfer of immediately available funds to an account designated by Seller to Buyer in writing at least two (2) Business Days prior to [...***...].

          (c) Subject to Section 5.15(a) hereof, on the date that is [...***...], Buyer shall deliver or cause to be delivered by electronic transfer of immediately available funds to an account designated by Seller to Buyer in writing at least two (2) Business Days prior to [...***...].

     1.6 Wholesaler Inventory Rebate.

     No later than fifteen (15) days after the Closing Date, Seller shall deliver a written statement to Buyer setting forth the Wholesaler Inventory Amount. If the Wholesaler Inventory Amount exceeds the Wholesaler Target Amount, then within two (2) Business Days following the delivery of such statement, Seller shall pay the Wholesaler Inventory Rebate to Buyer in cash by wire transfer of immediately available funds.

     1.7 Allocation of Purchase Consideration. The Purchase Price and the Assumed Liabilities shall be allocated among the Transferred Assets (and any other assets that are considered to be acquired for federal income tax purposes) for all purposes (including financial accounting and Tax purposes) as determined by Buyer in accordance with Section 1060 of the

***Confidential Treatment Requested

5.

Code and the Treasury Regulations thereunder (and any corresponding provision of state, local or foreign Law), based on the fair market value of the Transferred Assets, subject to the review of Seller and the procedures for disagreement set forth in this Section 1.7. Buyer shall prepare and deliver to Seller a draft allocation schedule (the “Allocation”) within fifteen (15) days prior to the Closing Date. This Allocation shall become final and binding on the parties, unless Seller notifies Buyer within fifteen (15) days after receipt of such Allocation of Seller’s disagreement with such Allocation. In the event Seller timely notifies Buyer of such disagreement, the parties shall resolve such disagreement in the manner described in Section 9.3 hereof. The parties shall revise the Allocation from time to time as mutually agreed to take into account any purchase price adjustment (including without limitation, any indemnification payment made pursuant to Article VIII). Accordingly, the parties shall, except as otherwise provided by Law, file all Tax Returns (including, without limitation, IRS Form 8594 and any comparable form under state, local or foreign Tax Law) in a timely manner and consistent with such Allocation, as revised from time to time. Each party agrees to notify the other party in the event that any Governmental or Regulatory Authority takes or proposes to take a position for Tax purposes that is inconsistent with the Allocation. Seller shall provide Buyer with a copy of any information required to be furnished to the Secretary of the Treasury under Code Section 1060.

     1.8 Third Party Consents.

          (a) Prior to Closing, Buyer and Seller shall cooperate and use their respective commercially reasonable efforts in obtaining any consents (both from Third Parties and from Governmental or Regulatory Authorities) necessary or required for the Transfer of the Transferred Assets to Buyer at Closing, including the Assumed Contracts.

          (b) Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement or attempted agreement to Transfer any Contract, or any Action, claim, right or benefit arising under or resulting from any Contract, that would otherwise constitute an Assumed Contract, if such Transfer or attempt to make such Transfer, without the consent or approval of a Third Party, would constitute a breach or violation thereof or in any way affect the rights of Seller thereunder; and no action under this Agreement shall constitute a Transfer of such a Contract in the absence of such consent or approval. To the extent that Seller is unable to Transfer any Contract that would otherwise constitute an Assumed Contract, Seller and Buyer shall use commercially reasonable efforts to enter into arrangements reasonably necessary to provide for Buyer to receive the benefits thereunder, including, at the request and at the sole expense of Buyer, enforcement by Seller for the benefit of Buyer of any and all rights of Seller thereunder against the other party thereto.

     1.9 Further Conveyances and Assumptions. At any time and from time to time following the Closing, Seller and Buyer shall, and shall cause their respective Affiliates to, do, execute, acknowledge and deliver, and cause to be done, executed, acknowledged or delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney, notices, assumptions, assurances and releases and such other instruments, and shall take such further actions, as may be reasonably necessary or appropriate to Transfer to Buyer and its respective successors or assigns, all of the rights, titles, interests, estates, remedies, powers and privileges intended to be transferred to Buyer under this Agreement and the Instruments of Transfer and the Ancillary Agreements and to assure fully to Seller and its Affiliates and their successors and

6.

assigns, the assumption of the Assumed Liabilities by Buyer under this Agreement and obligations and Liabilities of Buyer under the Ancillary Agreements, and to otherwise make effective the transactions contemplated hereby and thereby.

     1.10 Risk of Loss. Until the Effective Time, any Liability, loss of or damage to the Transferred Assets from fire, flood, casualty or any other similar occurrence shall be the sole responsibility of Seller. As of the Effective Time, title to the Transferred Assets shall be transferred to Buyer. After the Effective Time, Buyer shall bear all risk of loss associated with the Transferred Assets, wherever located, and shall be solely responsible for procuring adequate insurance to protect the Transferred Assets against any such loss.

ARTICLE II

CLOSING, DELIVERIES, TAX MATTERS

     2.1 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place commencing at 10:00 a.m., Eastern Standard Time, on (i) the date that is two (2) Business Days following the date on which the last of the conditions set forth in Article VI hereof shall have been satisfied (or waived by the appropriate party) (other than any of such conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions) or (ii) such other date as shall have been mutually agreed upon in writing by Buyer and Seller (the “Closing Date”). The Closing shall be deemed to have occurred at 11:59:59 PM (EST) on the day immediately preceding the Closing Date (the “Effective Time”). The Closing shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, NY 10036 or such other place as the parties may agree.

     2.2 Deliveries by Seller. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following:

          (a) a bill of sale substantially in the form attached hereto as Exhibit C (“Bill of Sale”), executed by Seller;

          (b) an assignment and assumption of Assumed Liabilities and Assumed Contracts in substantially the form attached hereto as Exhibit D (“General Assignment”), executed by Seller;

          (c) patent assignment documentation substantially in the form attached hereto as Exhibit E (“Patent Assignment”), executed by Seller;

          (d) trademark assignment documentation substantially in the form attached hereto as Exhibit F (the “Trademark Assignment”), executed by Seller;

          (e) a certificate substantially in the form attached hereto as Exhibit G, certifying that Seller is not a “foreign person” within the meaning of Section 1445 of the Code, executed by Seller;

          (f) the Transition Services Agreement, executed by Seller;

7.

          (g) all Material Consents (or waivers with respect thereto);

          (h) the Amgen Consent, executed by Seller and Amgen;

          (i) satisfactory evidence of the releases of all Encumbrances (other than Permitted Encumbrances) on the Transferred Assets and all UCC releases required for Seller to consummate the transactions contemplated hereby, in form and substance reasonably satisfactory to Buyer;

          (j) the Seller’s Closing Certificate;

          (k) an invoice (together with reasonable documentation to verify payments made by Seller) for pro-rata reimbursement by Buyer of expenses incurred by Seller (including amounts paid by Seller prior to Closing for Liabilities accruing after Closing and expenses incurred after the Closing Date) for (i) health insurance for Transferred Employees to the extent provided in the Transition Services Agreement and (ii) fees paid by Seller to Amgen in respect of the Monthly Maintenance Cost (as defined in Amendment No. Five to the Amgen License Agreement) (the “Transition Related Payments”); and

          (l) any other Instruments of Transfer or other documents reasonably requested by Buyer to consummate the transactions contemplated hereby.

     2.3 Deliveries by Buyer. At the Closing, Buyer shall deliver or cause to be delivered to Seller:

          (a) the Closing Payment;

          (b) the General Assignment;

          (c) the Patent Assignment;

          (d) the Trademark Assignments;

          (e) the Transition Services Agreement;

          (f) the Amgen Consent, executed by Buyer;

          (g) Buyer’s Closing Certificate; and

          (h) any other Instruments of Transfer or other documents reasonably requested by Seller to consummate the transactions contemplated hereby.

     2.4 Certain Tax Matters. The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date:

          (a) Transfer Taxes and Costs. All transfer, sales, use, value added, stamp, recording, registration, excise, and other similar Taxes arising out of, in connection with or attributable to the transactions contemplated by this Agreement, and any notarial fees incurred in connection with (i) the Transfer of any of the Transferred Assets pursuant to this Agreement or the

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Ancillary Agreements, (ii) the delivery of this Agreement or any of the Ancillary Agreements, and (iii) the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements (collectively, “Transfer Taxes”), if any, shall be borne by Buyer. Except as required by applicable Law, Buyer shall prepare, execute and file all Transfer Tax Returns and other documentation as may be required to comply with the provisions of any such Transfer Tax Laws. The party that is required by applicable law to make the filings, reports, or returns with respect to any applicable Transfer Taxes shall do so on a timely basis, and the other party shall cooperate with respect thereto as necessary. Buyer shall provide to Seller, and Seller shall provide to Buyer, all exemption certificates, resale certificates and other similar documentation with respect to the listed Transfer Taxes that may be provided for under applicable Law. Such certificates shall be in the form, and shall be signed by the proper party, as provided under applicable Law.

          (b) Pre-Closing Taxes. Seller shall be liable for all Taxes relating to or arising out of or in connection with the Transferred Assets or the Product Business imposed with respect to, incurred in or attributable to any taxable period ending on or before the Closing Date (the “Pre-Closing Period”).

          (c) Post-Closing Taxes. Buyer shall be liable for all Taxes relating to or arising out of or in connection with the Transferred Assets or the Product Business imposed with respect to, incurred in or attributable to any taxable period beginning after the Closing Date (the “Post-Closing Period”).

          (d) Straddle Period Taxes. All Taxes other than Transfer Taxes or Taxes based upon or related to income or receipts, including but not limited to, all personal property taxes, ad valorem obligations and similar taxes imposed on a periodic basis, in each case levied with respect to the Transferred Assets or the Product Business for a taxable period which includes (but does not end on) the Closing Date (a “Straddle Period”), shall be apportioned between Seller and Buyer. Taxes attributable to the Pre-Closing Period and Post-Closing Period shall be determined by assuming that the Straddle Period consisted of two (2) taxable years or periods, one which ended at the close of the Closing Date and the other which began on the date immediately following the Closing Date, and items of income, gain, deduction, loss or credit, and state and local apportionment factors for the Straddle Period shall be allocated between such two (2) taxable years or periods on a “closing of the books basis” by assuming that the books of the Person subject to such Tax were closed at the close of the day on the Closing Date, provided, however, that exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, and Taxes calculated on a periodic basis (such as real property Taxes and other ad valorem Taxes) shall be apportioned ratably between such periods on a daily basis. Within ninety (90) days after the Closing, Seller and Buyer shall present a reimbursement to which each is entitled under this Section 2.4(d) together with such supporting evidence as is reasonably necessary to calculate the applicable Pre-Closing Period or Post-Closing Period amount. Such amount shall be paid by the party owing it to the other within ten (10) days after delivery of such statement. Thereafter, Seller shall notify Buyer upon receipt of any bill for personal property Taxes relating to the Transferred Assets or the Product Business, part or all of which are attributable to the Post-Closing Period, and shall promptly deliver such bill to Buyer who shall pay the same to the appropriate taxing authority, provided that if such bill covers the Pre-Closing Period, Seller shall also remit prior to the due date of assessment to Buyer payment for the attributable amount of such bill that is attributable to the Pre-Closing Period. In the event that either Seller or Buyer shall

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thereafter make a payment for which it is entitled to reimbursement under this Section 2.4(d), the other party shall make such reimbursement promptly but in no event later than thirty (30) days after the presentation of a statement setting forth the amount of reimbursement to which the presenting party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement. Any payment required under this Section 2.4(d) and not made within ten (10) days of delivery of the statement shall bear interest at the rate per annum determined, from time to time, under the provisions of Section 6621(a)(2) of the Code for each day until paid.

          (e) Cooperation on Tax Matters. Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, and shall retain and (upon the other party’s request) furnish or cause to be furnished to the other party, as promptly as practicable, such information and assistance relating to the Transferred Assets and the Assumed Liabilities as is reasonably necessary for the preparation and filing of any Tax Return, claim for refund or other required or optional filings relating to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, or for the prosecution or defense of any suit or other proceeding relating to Tax matters. Such cooperation shall also include making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder at the expense of the requesting party. Buyer and Seller agree (A) to retain all books and records with respect to Tax matters pertinent to the Seller relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, Buyer or Seller, as the case may be, shall allow the other party to take possession of such books and records.

          (f) Settlement of Tax Matters. Notwithstanding any provision to the contrary contained in this Agreement, Buyer shall not consent to entry of any judgment or enter into any settlement or agreement relating to Taxes for which Buyer will seek reimbursement or indemnification from Seller or which relate to a Pre-Closing Period or Straddle Period, without the written consent of Seller, which consent shall not be unreasonably withheld.

          (g) Tax Claims.

               (i) After the Closing, each of Seller and Buyer shall promptly notify the other party in writing upon receipt of any written notice of any pending or threatened audit or assessment, suit, proposed adjustment, deficiency, dispute, distractive or judicial proceeding or similar claim relating to Taxes (a “Tax Claim”) with respect to damages for which Seller could be liable pursuant to this Agreement;

               (ii) Seller shall have a right to control, at its own cost, without affecting its or any other party’s rights to indemnification under this Agreement, the defense of all Tax Claims relating to any Pre-Closing Period or Straddle Period; provided, that Buyer shall have the right to materially participate, without affecting its or any other party’s rights to indemnification under this Agreement, in the defense of all Tax Claims relating to any Straddle Period;

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               (iii) Buyer shall have a right to control, at its own cost, without affecting its or any other party’s rights to indemnification under this Agreement, the defense of all Tax Claims relating to any Post-Closing Period;

               (iv) Buyer shall not settle any Tax Claim relating to any Straddle Period or Post-Closing Period that will in any way affect Taxes on a Pre-Closing Period or Straddle Period without the prior written consent of Seller, which consent will not be unreasonably withheld; and

               (v) Notwithstanding any other provision in this Agreement to the contrary, failure of Buyer to give notice to Seller of a Tax Claim for which Seller could be liable under this Section 2.4(g) shall, to the extent Seller does not otherwise have nor should have knowledge of such Tax Claim, result in forfeiture of Buyer’s right to any and all indemnification related to such Tax Claim under this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

          Except as set forth herein, Seller hereby represents and warrants to Buyer, as of the date hereof and as of the Closing Date, as follows:

     3.1 Corporate Existence. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Seller has full corporate power and authority to conduct the Product Business as it is now being conducted and to own or lease its assets. Seller is duly qualified or licensed to do business as a foreign corporation, and is in good standing as a foreign corporation, in every jurisdiction in which the ownership of the Transferred Assets or the conduct of the Product Business requires such qualification or license, except where the failure to do so would not have a Product Material Adverse Effect.

     3.2 Corporate Power and Authority. Seller has full corporate power and corporate authority to execute and deliver this Agreement and the Ancillary Agreements, as applicable, perform its obligations hereunder and thereunder, to Transfer the Transferred Assets and consummate the transactions contemplated herein and therein. The execution and delivery of this Agreement and the Ancillary Agreements, as applicable, the performance by Seller of its obligations hereunder and thereunder and the consummation of the transactions contemplated herein and therein have been duly and validly authorized by all necessary corporate action on the part of Seller and no other proceedings or actions on the part of Seller are necessary to authorize such execution, delivery and performance. Each of this Agreement and the Ancillary Agreements has been, or will be prior to Closing, as applicable, duly and validly executed and delivered by Seller and (assuming the due authorization, execution and delivery by Buyer) constitutes, or will constitute at Closing, as applicable, the legal, valid and binding obligation of Seller, enforceable against it in accordance with their terms except (a) as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to creditor’s rights generally and (b) subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity) (clauses (a) and (b), the “Enforceability Exceptions”).

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     3.3 Consents; No Violation.

          (a) Except for the requisite filings under the HSR Act and the expiration or termination of the waiting period thereunder, and except for all filings and other actions contemplated by this Agreement and the Ancillary Agreements (including any consents, licenses, permits, waivers, approvals, authorizations or orders from any Governmental or Regulatory Authority necessary to transfer the Product Regulatory Approvals from Seller to Buyer, all of which are set forth in Section 3.3(a) of the Seller Disclosure Letter) (the “Regulatory Consents”), the execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements and the consummation by Seller of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental or Regulatory Authority.

          (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements by Seller nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, violate or result in a breach of any of the terms, conditions or provisions of or constitute (with due notice or lapse of time, or both) a default under or give rise to any right of termination, cancellation or acceleration or result in the creation of any Encumbrance upon any of the Transferred Assets under any provision of Seller’s certificate of incorporation or by-laws, (ii) except as set forth on Section 3.3(b) of the Seller Disclosure Letter, violate or result in a breach or result in the acceleration or termination of, or the creation in any Third Party of the right to accelerate, terminate, modify or cancel any Material Contract, or (iii) subject to the governmental filings and Regulatory Consents set forth in Section 3.3(a) hereof, conflict with or violate in any material respect any applicable Law.

     3.4 Tax Matters.

          (a) There are no Encumbrances on any of the Transferred Assets that arose in connection with any failure (or alleged failure) to pay any Tax, and to the Knowledge of Seller, there is no basis for assertion of any claims attributable to Taxes which, if adversely determined, would reasonably be expected to result in any such Encumbrance.

          (b) Seller has, with respect to the Product Business, timely paid (or caused to be timely paid) all Pre-Closing Taxes (whether or not shown on any Tax Return) that will have been required to be paid on or prior to the Closing Date, the non payment of which would result in a Liability for Taxes with respect to any of the Transferred Assets, would otherwise materially affect the Business or would result in the Buyer becoming liable or responsible for Pre-Closing Taxes as a transferee or successor by Contract, Law or otherwise. To Seller’s Knowledge, with respect to the Product Business only, Seller has complied in all material respects with all applicable Laws relating to the collection, withholding and payment and withholding of Taxes (such as sales or use Taxes or Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, member, stockholder or any other third party).

          (c) No Tax authority has, with respect to the Product Business, raised any issues in connection with any Tax Return relating to Taxes that would materially affect the Post-Closing Period; there are, with respect to the Product Business, no pending tax audits and, with respect to the Product Business, no waivers of statutes of limitations have been given that would materially

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affect the Post-Closing Period and Seller has, with respect to the Product Business, not otherwise agreed to any extension of time with respect to a Tax assessment or deficiency that would materially affect the Post-Closing Period.

     3.5 No Product Material Adverse Effect. Between December 31, 2006 and the date hereof, and except as set forth on Section 3.5 of the Seller Disclosure Letter:

          (a) there has not been any Product Material Adverse Effect and no event has occurred or circumstance or condition exists that would reasonably be expected to result in such a Product Material Adverse Effect; and

          (b) Seller has, consistent with the conduct of the Product Business during the twelve (12) months prior to the Execution Date: (i) continued and conducted the Product Business in Seller’s ordinary and usual course of business, (ii) maintained its relationships with suppliers, distributors, customers and others having material business relationships with Seller related to the Product Business and (iii) not sold or shipped Product or entered into any agreement to sell or ship Product to direct sale customers or Wholesalers which would exceed the normal and customary levels of purchases of Infergen made by such customers and the inventory levels of Infergen maintained by them.

     3.6 Title to Transferred Assets. Seller has good and valid title to the Transferred Assets free and clear of any Encumbrances, except for the Permitted Encumbrances. Upon consummation of the transactions contemplated hereby, Buyer will have acquired good and valid title to the Transferred Assets, and, at Closing, the Transferred Assets will be free and clear of all Encumbrances except for Permitted Encumbrances and Encumbrances created by Buyer. Seller has not received any notice of any adverse claims of ownership to or right to use the Transferred Assets, and to Seller’s Knowledge, no facts or circumstances exist which would provide a reasonable basis for any such adverse claim of ownership or right to use any of the Transferred Assets.

     3.7 Intellectual Property.

          (a) Seller is the owner, licensee or sublicensee (as applicable), free and clear of any Encumbrance, except for the Permitted Encumbrances, of all right, title and interest in and to the Product Intellectual Property.

          (b) Section 3.7(b) of the Seller Disclosure Letter sets forth a true and complete list of the material Intellectual Property owned, licensed or controlled by Seller covering the Product Business.

          (c) To the Knowledge of Seller, (i) the activities of the Seller, if any, relating to the development, manufacture, marketing, use, sale, distribution, import, export or other commercial exploitation of the Product by Seller, in each case in connection with the operation of the Product Business, do not infringe upon, misappropriate, violate, dilute (with respect to any trademarks, trade names, brand names and service marks) or otherwise constitute the unauthorized use of, the Intellectual Property rights of any third party; and (ii) no right, license, lease, consent, or other agreement is required with respect to any Product Intellectual Property for the conduct of the Product Business other than those included in the Transferred Assets.

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          (d) To the Knowledge of Seller, (i) none of the Product Patents is involved in any litigation, reissue, interference, reexamination or opposition, (ii) there has been no threat or other indication that any such proceeding will hereafter be commenced, (iii) the Product Patents (other than patent applications) (A) are in good standing, (B) are without challenge of any kind; and (C) are valid and enforceable, and have not been adjudged invalid or unenforceable in whole or in part         .

          (e) To the Knowledge of Seller, (i) none of the Product Trademarks or Product Domains or registrations or applications to use or register such items have been or are involved in any cancellation, nullification, interference, conflict, concurrent use or opposition proceeding, or litigation, and (ii) there has been no threat or other indication that any such proceeding will hereafter be commenced.

          (f) To the Knowledge of Seller, no legal proceedings are pending or threatened, against Seller (i) based upon, challenging or seeking to deny or restrict the use of any of the Product Intellectual Property, (ii) alleging that any services provided by, processes used by, or products manufactured or sold or to be manufactured or sold by Seller in relation to the Product Business infringe or misappropriate any Intellectual Property right of any third party or (iii) alleging that the Amgen License Rights or Roche/Genentech License Rights conflict with the terms of any third party license or other agreement.

          (g) To the Seller’s Knowledge, the Product Intellectual Property is not licensed or otherwise similarly made available to any Person by Seller.

          (h) To the Seller’s Knowledge, Seller exclusively owns or licenses all right, title, and interest to and in the Product Intellectual Property (other than intellectual property rights identified in Section 3.7(h) of the Seller Disclosure Letter) free and clear of any Encumbrance (other than Permitted Encumbrances).

          (i) Seller has, with respect to the Product Business, taken reasonable measures and precautions to protect and maintain its trade secrets and other confidential information in confidence and Seller’s employees, consultants, and vendors who had access to such confidential information were each parties to written confidentiality agreements with Seller with respect thereto.

          (j) To Seller’s Knowledge, (i) Seller has not received any written notice or communication of any actual, alleged, or potential infringement, misappropriation or unlawful or unauthorized use of any Intellectual Property owned by any other Person in connection with the Product and (ii) no other Person is infringing, misappropriating, or making any unlawful or unauthorized use of any Product Intellectual Property owned, licensed, or otherwise used by Seller or its Affiliates.

          (k) To Seller’s Knowledge, as of the date of this Agreement, no interference, opposition, reissue, reexamination, or other Action is pending or is threatened, in which the scope, validity, or enforceability of any Product Intellectual Property is being or, to the Seller’s Knowledge, could reasonably be expected to be, contested or challenged.

          (l) To Seller’s Knowledge, no present or former employee of or consultant to Seller or any of its Affiliates has any ownership interest (whether or not currently exercisable), in whole or in part, in any material Product Intellectual Property.

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     3.8 Compliance with Laws; Litigation.

          (a) Except with respect to any matter relating to or arising from Regulatory Approvals (which is addressed in Section 3.9), Seller is in compliance in all material respects with all Laws as they relate to the Product, the Product Business, the Transferred Assets and the Assumed Liabilities. Except as otherwise set forth on Section 3.8(a) of the Seller Disclosure Letter, from the date Seller acquired the Product Business, Seller has not been charged with, received written notice with respect to or to Seller’s Knowledge been under investigation with respect to a violation of Law applicable to the Product or the Product Business.

          (b) There are no actions, claims, proceedings or investigations (collectively, “Actions”) existing, pending or to Seller’s Knowledge, threatened with respect to the Product, the Product Business, the Transferred Assets or the Assumed Liabilities or with respect to this Agreement or any of the transactions contemplated hereby by or before any Governmental or Regulatory Authority.

          (c) Since the date Seller acquired the Product Business, no Governmental or Regulatory Authority has served notice on Seller that the Product was or is in material violation of any Law or the subject of any investigation.

          (d) No Governmental or Regulatory Authority has commenced or, to Seller’s Knowledge, threatened to initiate any action to withdraw the Product or request the recall of the Product or commenced or, to Seller’s Knowledge, threatened to initiate any action to enjoin production of the Product at any facility.

     3.9 Regulatory Approvals.

          (a) Section 3.9(a) of the Seller Disclosure Letter sets forth a complete and correct list of all Product Regulatory Approvals. Seller has provided to Buyer complete and correct copies of the Product Regulatory Approvals. The Product Regulatory Approvals are in full force and effect. Seller has provided Buyer complete and correct copies of all reports, audits, surveys or inspections by or on behalf of any Governmental or Regulatory Authority to the extent such reports reflect adverse findings, deficiencies or other failures to meet any applicable Laws in any material respect.

          (b) Seller has all Product Registrations necessary for or used to carry on the Product Business as conducted and being conducted by Seller and which are required by applicable Law. To Seller’s Knowledge, Seller has not abandoned or allowed to lapse any such Product Registrations, and all such Product Registrations are active. Seller has filed with the FDA all required notices, supplemental applications and annual or other reports, including adverse experience reports, with respect to each IND, NDA or BLA or other Product Regulatory Approval that is held in the name of Seller and relate to the Product.

          (c) To Seller’s Knowledge, except as otherwise set forth on Section 3.9(c) of the Seller Disclosure Letter, Seller is in compliance with all of the Regulatory Approvals listed on Section 3.9(a) of the Seller Disclosure Letter, and, since the time Seller acquired its rights in the Product, Seller has not received any notification, written or oral, from any Third Party with respect to any alleged or possible material violation with respect to any such Regulatory Approvals, and to

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Seller’s Knowledge, there are no facts or circumstances that would form a reasonable basis for any such violation.

     3.10 Material Contracts.

          (a) Section 3.10 of the Seller Disclosure Letter sets forth a complete and correct list of each of the Assumed Contracts (i) which involve annual payments totaling [...***...], or (ii) which are otherwise material to the Product Business (the “Material Contracts”). Seller has delivered to or made available to Buyer true and complete copies of all Material Contracts. All such Material Contracts to which Seller is a party are, as to Seller (and, as to the other parties thereto, to the Knowledge of Seller), legal, valid and binding agreements of the respective parties thereto, are in full force and effect and enforceable in accordance with their terms subject to the Enforceability Exceptions. Section 3.10(a) of the Seller Disclosure Letter identifies each Material Contract that requires the consent of or notice to the other party thereto to avoid any breach, default or violation of such Contract in connection with the transactions contemplated by this Agreement.

          (b) Seller is not in material breach or default, and no event has occurred that with notice or lapse of time would constitute a material breach or default by Seller permitting termination, modification, or acceleration, under any Material Contract. To the Knowledge of Seller, no other party to any Material Contract is in material breach or default under, or has repudiated any material provision of, any such Material Contract.

          (c) The Amgen Agreements are all of the Contracts between Seller and Amgen that pertain to the Product.

     3.11 Inventory. The Inventory is valued on the books of Seller in accordance with Seller’s standard accounting practices, consistently applied. To Seller’s Knowledge, except as otherwise set forth on Section 3.11 of the Seller Disclosure Letter, the Inventory has been produced or manufactured in accordance with all applicable Law and Product Registrations.

     3.12 Brokers Fees.

          (a) No broker, finder or investment banker has acted directly or indirectly for Seller in connection with this Agreement or the transactions contemplated hereby; and

          (b) No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in respect thereof based in any way on this Agreement or the transactions contemplated hereby on behalf of Seller.

     3.13 Sufficiency. The Transferred Assets and Buyer’s rights under this Agreement and the other Ancillary Agreements, constitute all of the material assets that are necessary for Buyer to operate the Product Business as of and after the Closing in a substantially similar manner as the Product Business was operated by Seller for the twelve (12) months prior to the Effective Time; provided, however, for the avoidance of doubt, such representation and warranty shall exclude any and all assets and capabilities that a comparable company in the United States pharmaceutical business should customarily be capable of providing in connection with the operation of a business such as the Product Business, including internal and external infrastructure, information system and technology, manufacturing equipment and facilities,

***Confidential Treatment Requested

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business permits and licenses, professional services, trade and distribution networks, personnel, facilities, factories and other property, promotional and brand strategies, and financing.

     3.14 Disclosure Letter. To the extent any Seller representation or warranty herein provides a corresponding schedule of disclosures or exceptions in the disclosure letter delivered to Buyer by Seller as of the date hereof (the “Seller Disclosure Letter”), such schedule qualifies the representation and warranty in the correspondingly numbered section of this Agreement to which it relates and any other representation and warranty to which it is readily apparent from a reading of the Seller Disclosure Letter that such disclosure is related.

     3.15 Financial Statements. Section 3.15 of the Seller Disclosure Letter contains true, correct and complete copies of statements of selected financial information related to the Product for [...***...] (the “Product Financial Statements”). The Product Financial Statements have been prepared in accordance with GAAP consistently applied from the books and records of Seller which have been maintained in a manner consistent with Seller’s accounting policies. The Product Financial Statements fairly present, in all material respects, the results of operations of Seller as they relate to the Product for such periods, except for normal recurring year end adjustments.

     3.16 Product Records. All of the Product Records have been maintained in accordance with sound business practices.

     3.17 Insurance Claims. To Seller’s Knowledge, neither Seller nor any of its Affiliates has filed any formal products liability claim with its insurers arising from the Product since Seller acquired the Product Business, and Seller has not received any written notice of any threatened products liability claims with respect to the Product.

     3.18 No Other Representations and Warranties. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE III AND THE ANCILLARY AGREEMENTS, SELLER MAKES NO EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY, AND SELLER HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller as follows:

     4.1 Corporate Existence. Buyer is a limited liability company duly formed, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. Buyer has full limited liability company power and authority to conduct its business as it is now being conducted and to own or lease its properties and assets. Buyer is duly qualified or licensed to do business as a foreign company, and is in good standing as a foreign company, in every jurisdiction in which the ownership of the Transferred Assets would require such qualification or

***Confidential Treatment Requested

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license, except where the failure to be so qualified would not have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations under this Agreement or the Ancillary Agreements. Copies of the organizational documents of Buyer have been made available to Seller, and such copies are accurate and complete copies of such organizational documents as in effect on the date hereof.

     4.2 Corporate Power and Authority. Buyer has full limited liability company power and limited liability company authority to execute and deliver this Agreement and the Ancillary Agreements, as applicable, perform its obligations hereunder and thereunder, purchase the Transferred Assets and consummate the transactions contemplated herein and therein. The execution and delivery of this Agreement and the Ancillary Agreements, as applicable, the performance by Buyer of its obligations hereunder and thereunder and the consummation of the transactions contemplated herein and therein have been duly and validly authorized by all necessary limited liability company action on the part of Buyer and no other proceedings or actions on the part of Buyer are necessary to authorize such execution, delivery and performance. Each of this Agreement and the Transaction Agreements has been, or will be at Closing, as applicable, duly and validly executed and delivered by Buyer and (assuming the due authorization, execution and delivery by Seller) constitutes, or will constitute prior to Closing, as applicable, the legal, valid and binding obligation of Buyer, enforceable against it in accordance with its terms subject to the Enforceability Exceptions.

     4.3 Consents; No Violations.

          (a) Except for the requisite filings under the HSR Act and the expiration or termination of the waiting period thereunder, and except for the Regulatory Consents, the execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental or Regulatory Authority.

          (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, violate or result in a breach of any provision of the organizational documents of Buyer or (ii) subject to the governmental filings and Regulatory Consents set forth in Section 4.3(a), violate any applicable Law.

     4.4 Financing. Buyer has received a letter [...***...], constitutes sufficient funds to pay in cash the Purchase Price and all fees and expenses necessary or related to the consummation of the transactions contemplated by this Agreement. Buyer has provided Seller a true, complete and correct copy of the Financing Letter.

     4.5 Litigation. There are no Actions existing, pending or, to Buyer’s knowledge, threatened against Buyer before any Governmental or Regulatory Authority, which, if determined adversely, would reasonably be expected to have a material adverse effect on the

***Confidential Treatment Requested

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ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations under this Agreement or the Ancillary Agreements.

     4.6 Brokers Fees.

          (a) No broker, finder or investment banker has acted directly or indirectly for Buyer in connection with this Agreement or the transactions contemplated hereby; and

          (b) No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in respect thereof based in any way on this Agreement or the transactions contemplated hereby on behalf of Buyer.

ARTICLE V

COVENANTS

     5.1 Conduct of the Product Business.

          (a) Between the date hereof and the Closing Date, except as otherwise set forth on Section 5.1 of the Seller Disclosure Letter, as contemplated by this Agreement or consented to in writing by Buyer (whose consent may not be unreasonably withheld, delayed or conditioned), Seller shall, consistent with its conduct of the Product Business during the twelve (12) months prior to the date hereof (i) continue to conduct the Product Business in Seller’s ordinary and usual course of business and (ii) use its commercially reasonable efforts consistent with past practices and policies to (A) not take any action to diminish the market for Infergen and the goodwill associated with Infergen and the Product Intellectual Property, (B) preserve in full force and effect the Assumed Contracts, (C) maintain its relationships with suppliers, distributors, customers and others having business relationships with it related to the Product Business, and (D) maintain in good standing all Product Regulatory Approvals held by Seller.

          (b) Between the date hereof and the Closing Date, Seller shall not, without Buyer’s prior written consent whose consent may not be unreasonably withheld, delayed or conditioned (i) take any affirmative action, or fail to take any reasonable action within its control, which would reasonably be expected to (A) cause Seller to violate Section 5.1(a), or (B) have a Product Material Adverse Effect; (ii) make any material modifications to any Material Contract; (iii) sell, lease, transfer or assign any of the Transferred Assets, other than inventory in the ordinary course of business consistent with past custom and practice; (iv) delay or postpone the payment of accounts payable and other Liabilities related to the Product Business or accelerate the collection of accounts receivable related to the Product Business, other than in the ordinary course of business consistent with past custom and practice; (v) enter into any Contract (or series of related Contracts) or amendment of any Contract in each case related to the Product Business involving an aggregate consideration with respect to each such Contract in excess of [...***...] other than in the ordinary course of business consistent with past custom and practice; (vi) create or suffer to exist any Encumbrance on any of the Transferred Assets other than Permitted Encumbrances; (vii) take or omit to take any action with the intention or purpose of causing the representations and warranties contained in this Agreement to be untrue in any material respect on the Closing Date, other than such action as shall have been previously agreed to in writing by the parties hereto; (viii) sell or ship

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Product or enter into any agreement to sell or ship Product to direct sale customers or Wholesalers which would exceed the normal and customary levels of purchases of Infergen made by such customers and the inventory levels of Infergen maintained by them; or (ix) authorize any of the foregoing or enter into any agreement to do any of the foregoing.

               (c) [...***...].

               (d) [...***...].

     5.2 Access to Information. Between the date hereof and the Closing Date, Seller shall, upon reasonable notice and subject to any applicable Law, including, without limitation, antitrust Laws, (a) afford Buyer, its financing sources and their respective representatives reasonable access, during regular business hours, to Seller’s personnel, the Assumed Contracts, Product Regulatory Approvals, the Product Records and all other information and materials pertaining to the Product Business; provided, however, that such access shall not unreasonably interfere with Seller’s business and operations; provided, further, that notwithstanding the above, Buyer shall not contact any customers, suppliers, distributors, employees or consultants of Seller without Seller’s prior written consent, which shall not be unreasonably withheld and (b) otherwise cooperate with and assist Buyer in its preparation to integrate the Product Business with its own businesses. The Confidentiality Agreement shall continue in full force and effect in accordance with its terms, provided however, that at Closing, Buyer’s obligations under the Confidentiality Agreement shall terminate with respect to information relating solely to the Transferred Assets and/or the Assumed Liabilities. The investigation contemplated by this Section 5.2 shall not affect the representations and warranties of Seller or the indemnification rights of Buyer contained in this Agreement.

     5.3 Reasonable Best Efforts; Governmental Approvals; Material Consents. Buyer and Seller shall cooperate with each other and use their reasonable best efforts to (i) as promptly as practicable, take, or cause to be taken, all appropriate action, and do or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable, (ii)

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obtain from any Third Party all Material Consents, and (iii) obtain from any Governmental or Regulatory Authority any Regulatory Consents or any other consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by Seller or Buyer, including, without limitation, those in connection with the HSR Act (as provided for in Section 5.4), to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable.. Each of Seller and Buyer shall respond as promptly as practicable to any inquiries or requests received from any Governmental or Regulatory Authority in the Territory for additional information or documentation. Each party shall (a) promptly notify the other party of any written communication to that party or its Affiliates from any Governmental or Regulatory Authority and, subject to applicable Law, permit the other party or the other party’s counsel to review in advance any proposed written communication to any of the foregoing; and (b) not participate, or permit its Affiliates to participate, in any substantive meeting or discussion with any Governmental or Regulatory Authority in respect of any filings, investigation or inquiry concerning this Agreement unless it consults with the other party in advance and, to the extent permitted by such Governmental or Regulatory Authority in the Territory, gives the other party the opportunity to attend and participate thereat.

     5.4 Filings Under the HSR Act.

          (a) Seller and Buyer acknowledge that the transactions contemplated by this Agreement require filings with the United States Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice (the “DOJ”) under the HSR Act.

          (b) Seller and Buyer shall each use their commercially reasonable best efforts to obtain and to cooperate with each other in order to obtain all consents, waivers, approvals, clearances, authorizations or orders and to make all filings required in connection with the authorization, execution and delivery of this Agreement by Seller and Buyer and the consummation by them of the transactions contemplated hereby.

          (c) No party shall voluntarily extend any waiting period under the HSR Act and/or enter into any agreement with a Governmental or Regulatory Authority to delay or not to consummate the transactions contemplated by this Agreement except with the prior written consent of the other party (such consent not to be unreasonably withheld, delayed or conditioned and which reasonableness shall be determined in light of each party’s obligation to do all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement).

          (d) Seller and Buyer shall promptly comply with or cause to be complied with any requests by the FTC and the DOJ for additional information concerning such transactions, in each case so that the waiting period under the HSR Act applicable to this Agreement and the transactions contemplated hereby shall expire as soon as practicable after the execution and delivery of this Agreement.

          (e) In furtherance and not in limitation of the agreements of the parties contained in this Section 5.4, each Person shall use its reasonable best efforts to resolve such objections, if any, as may be asserted by a Governmental or Regulatory Authority or other Person with respect to the transactions contemplated hereby under any applicable Law. Notwithstanding anything to the

21.

contrary herein, nothing in this Agreement shall be deemed to require Seller or Buyer or any of their respective Affiliates (i) to agree to, or proffer to, divest or hold separate any assets or any portion of any business or (ii) contest or resist any Action challenging any transaction contemplated by this Agreement.

          (f) Buyer shall be responsible for any filing fees incurred in connection with the required filing under the HSR Act.

     5.5 No Solicitation of Proposals. Subject to obligations imposed by applicable Law, prior to the earlier of the Closing and the termination of this Agreement, Seller shall not, directly or indirectly, through any of its Affiliates, officers, directors, employees, financial advisors, agents or other representatives, solicit, initiate, encourage or entertain any inquiries or proposals, discuss, engage in or negotiate with, provide any information or documentation to, consider the merits of any inquiries or proposals from or enter into any arrangement, understanding or agreement with any Person (other than Buyer) relating to any transaction involving, in whole or in part, the Product Business or the Product, or that would otherwise compromise Buyer’s or Seller’s ability to consummate the transactions contemplated in this Agreement and the Ancillary Agreements. The parties recognize and acknowledge that a breach by Seller of this Section 5.5 will cause irreparable harm and material loss and damage to the Buyer as to which it will not have an adequate remedy at law or in damages. Accordingly, each party acknowledges and agrees that the issuance of an injunction or other equitable remedy is an appropriate remedy for any such breach.

     5.6 Notice; Cure. Buyer and Seller shall promptly notify each other in writing in reasonable detail of, and will use commercially reasonable efforts to cure before the Closing Date, any fact, event, action, transaction or circumstance, as soon as practical after it becomes known to such party, (a) that causes or is reasonably likely to cause any covenant or agreement of Buyer or Seller under this Agreement to be breached in any material respect, (b) that renders or is reasonably likely to render untrue or inaccurate in any material respect any representation or warranty of the respective parties contained in this Agreement or (c) that will result in, or would reasonably be expected to result in, the failure of such party to timely satisfy any of the closing conditions specified in Article VI hereof. Nothing contained in Section 5.1 hereof shall prevent Seller from giving such notice, using such efforts or taking any action to cure or curing any such event, transaction or circumstance. No notice given pursuant to this Section 5.6 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein. For purposes of seeking indemnification pursuant to Article VIII hereunder, the representations and warranties made by Seller shall not be deemed to include or reflect any such notices, supplements and amendments made after the date hereof.

     5.7 Press Releases; Announcements.

          (a) Promptly after the execution hereof, the parties shall jointly issue a press release announcing the execution of this Agreement to the public. The content and form of such press release shall be mutually agreed upon by the parties, which agreement shall not be unreasonably withheld, conditioned or delayed by either party. Thereafter, Seller or Buyer may grant interviews, issue press releases or similar public announcements or make public statements

22.

concerning the execution or performance of this Agreement or the transactions contemplated hereby, but, without the prior written consent of the other parties which consent shall not be unreasonably withheld, conditioned or delayed, any such disclosure must be within the parameters of the contents of the initial press release. Buyer and Seller may make such disclosures as may be required by applicable Law (including without limitation, federal and local securities Laws) or any listing agreement with the New York Stock Exchange, or as may be reasonably requested in connection with any proceedings before any Governmental or Regulatory Authority.

          (b) Each party shall be permitted to notify its customers and wholesalers of the transactions contemplated by this Agreement promptly following the execution hereof.

     5.8 Financing.

          (a) [...***...].

          (b) [...***...].

     5.9 Non Solicitation of Employees. Notwithstanding anything contained in the Non-Solicitation Agreement, from and after the date hereof, each party shall not, and shall cause their respective Affiliates not to, without the prior written approval of the other party, for a period of [...***...] from the Closing Date, directly, or indirectly, (i) solicit, encourage, entice or induce any person who is an employee of such other party (other than pursuant to Section 5.13 hereof) at the Closing Date, to terminate his or her employment with the other party, or (ii) hire or employ any person who is an employee of the other party at Closing Date; provided, that the foregoing shall not apply to [...***...].

     5.10 NDC Numbers, Product Returns, Rebates and Chargebacks.

          (a) NDC Numbers. Following the Closing Date, Buyer shall register with FDA to obtain its own NDC numbers with respect to the Product and shall use commercially reasonable efforts to have in place as soon as reasonably practicable all resources such that sales can be accomplished under the NDC numbers of Buyer. Thereafter, Buyer shall use, or cause to be used, its new NDC numbers on all invoices, orders, drug labels and labeling and other communications with all customers and Governmental or Regulatory Authorities.

          (b) Product Returns.

               (i) For a [...***...] period following the Closing, Seller shall be financially and legally responsible for all Liabilities associated with any customer or wholesaler returns of expired, damaged, defective, or otherwise unsalable

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Product (“Product Returns”) for any Infergen sold by Seller prior to the Closing Date identified in Section 5.10(b)(i)(A) of the Seller Disclosure Letter. Buyer and Seller shall be financially and legally responsible, in the proportions set forth in Section 5.10(b)(i)(B) of the Seller Disclosure Letter, for all Liabilities associated with any Product Returns described in Section 5.1(b)(i)(B) of the Seller Disclosure Letter. The information set forth in Sections 5.10(b)(i)(A) and (B) of the Seller Disclosure Letter includes the lot number and units per lot of Infergen described therein.

               (ii) Except as set forth herein, Buyer shall process all Infergen subject to a Product Return (the “Returned Product”) received after the Closing Date irrespective of which party sold such Returned Product. Such processing by Buyer shall also include, if permitted by Law, the destruction of all Returned Product by Buyer, or the customer, as applicable. With respect to Product Returns that are Liabilities of Seller, [...***...].

               (iii) Each of Buyer and Seller agree that unless required by Law, it will not, directly or indirectly, take any action that would provide any incentive to, or otherwise intentionally induce, customers to return Infergen, except as the parties may otherwise mutually agree.

          (c) Government Rebates.

               (i) Responsibility for rebates pursuant to any government rebate programs with respect to government claims for Infergen (“Government Rebates”) shall be allocated between Seller and Buyer as follows:

               (1) Seller shall be responsible for [...***...].

               (2) Buyer shall be responsible for all Government Rebates with respect to Infergen dispensed to patients beginning [...***...].

               (3) It is understood and agreed that the dispense date contained in any report from a state rebate program shall be used for purposes of determining the date of such claim.

               (4) To the extent that information related to Government Rebates is received with respect to the calendar quarter that includes the Government Rebate Tail Period following the end of such calendar quarter, and such information does not include a dispense date, [...***...]

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     [...***...].

               (ii) If either party (the “Non-Responsible Party”) receives an invoice with respect to a Government Rebate that is the responsibility of the other party (the “Responsible Party”), such Non-Responsible Party shall promptly provide a copy of such invoice to the Responsible Party and such Responsible Party shall have ten (10) days following receipt of such invoice to notify the Non-Responsible Party that it intends to dispute such invoice. If the Responsible Party does not so notify the Non-Responsible Party within such 10-day period, such Non-Responsible Party shall be permitted to remit payment in respect of such invoice on the Responsible Party’s behalf and the Responsible Party shall reimburse the Non-Responsible Party for such payment pursuant to the terms of Section 5.10(c)(iii). If the Responsible Party provides such notice to the Non-Responsible Party within such 10-day period then the Responsible Party shall promptly initiate a dispute of such invoice at its sole cost and expense and shall be liable for all reasonable costs and expenses (including reasonable attorney fees) of the Non-Responsible Party required to prosecute the disputed invoice. In the event that an invoice is disputed under this Section 5.10(c)(ii) by the Responsible Party, the Non-Responsible Party shall not remit payment in respect of such invoice without the Responsible Party’s prior written consent; provided that any late fees, interest or other penalties that are ultimately owing due to delayed payment on such invoice shall be satisfied by the Responsible Party and provided further that notwithstanding the foregoing, the Non-Responsible Party may, in its sole discretion, pay any such disputed invoice without the consent of the Responsible Party, but in such case the Non-Responsible Party shall be entitled to reimbursement by the Responsible Party only with respect to amounts if any, that are finally owing following settlement of the related dispute.

               (iii) Subject to Section 5.10(c)(ii), to the extent that a Non-Responsible Party remits payment in respect of Government Rebates which are payable by the Responsible Party, the Responsible Party shall reimburse the other party on or before the date that is thirty (30) days following receipt of such invoices by such Non-Responsible Party, provided that such invoices describe in reasonable detail the payments made by such Non-Responsible Party.

          (d) Commercial Rebates.

               (i) Responsibility for commercial rebates with respect to Infergen (“Commercial Rebates”) shall be allocated between Seller and Buyer as follows:

                    (1) Seller shall be responsible for [...***...]

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     [...***...].

                    (2) Buyer shall be responsible for all Commercial Rebates with respect to Infergen dispensed to patients beginning [...***...].

                    (3) To the extent that information related to Commercial Rebates is received with respect to the calendar quarter that includes the Commercial Rebate Tail Period following the end of such calendar quarter, and such information does not include a dispense date, [...***...].

               (ii) If a Non-Responsible Party receives an invoice with respect to a Commercial Rebate that is the responsibility of the Responsible Party, such Non-Responsible Party shall promptly provide a copy of such invoice to the Responsible Party and such Responsible Party shall have ten (10) days following receipt of such invoice to notify the Non-Responsible Party that it intends to dispute such invoice. If the Responsible Party does not so notify the Non-Responsible Party within such 10-day period, such Non-Responsible Party shall be permitted to remit payment in respect of such invoice on the Responsible Party’s behalf and the Responsible Party shall reimburse the Non-Responsible Party for such payment pursuant to the terms of Section 5.10(d)(iii). If the Responsible Party provides such notice to the Non-Responsible Party within such 10-day period then the Responsible Party shall promptly initiate a dispute of such invoice at its sole cost and expense and shall be liable for all reasonable costs and expenses (including reasonable attorney fees) of the Non-Responsible Party required to prosecute the disputed invoice. In the event that an invoice is disputed under this Section 5.10(d)(ii) by the Responsible Party, the Non-Responsible Party shall not remit payment in respect of such invoice without the Responsible Party’s prior written consent; provided that any late fees, interest or other penalties that are ultimately owing due to delayed payment on such invoice shall be satisfied by the Responsible Party and provided further that notwithstanding the foregoing, the Non-Responsible Party may, in its sole discretion, pay any such disputed invoice without the consent of the Responsible Party, but in such case the Non-Responsible Party shall be entitled to reimbursement by the Responsible Party only with respect to amounts if any, that are finally owing following settlement of the related dispute.

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               (iii) Subject to Section 5.10(d)(ii), to the extent a Non-Responsible Party remits payment in respect of Commercial Rebates which are payable by the Responsible Party, the Responsible Party shall reimburse the Non-Responsible Party on or before the date that is thirty (30) days following receipt of such invoices by such Non-Responsible Party, provided that such invoices describe in reasonable detail the payments made by such Non-Responsible Party.

               (iv) Notwithstanding the foregoing, Buyer agrees that (A) Seller’s financial liability for Commercial Rebates shall be limited to those commercial customers with which the Product Business has a rebate obligation as of the Closing Date, and (B) any payments by Seller with respect to sales after the Closing Date shall be made in accordance with Seller’s rebate obligations on the Closing Date with respect to each commercial customer and shall be solely based on the terms and conditions of Seller’s agreements with the respective customer, as such terms and conditions existed as of the Closing Date.

          (e) Chargeback Claims.

               (i) Seller shall be financially and legally responsible for all chargeback claims (the “Chargeback Claims”) related to Infergen sold [...***...]. Buyer shall process and be financially and legally responsible for all Chargeback Claims related to Infergen sold [...***...]. The date on which Infergen shall be deemed to have been sold pursuant to the preceding sentence shall be the date on which it was shipped by the applicable wholesaler. Notwithstanding the foregoing, the parties acknowledge that the VA National Acquisition Center must approve the removal of Infergen from Seller’s Federal Supply Schedule before the responsibility of processing such claims is transferred from Seller to Buyer. Until such approval is obtained, Seller shall continue to be responsible for processing the Federal Supply Schedule Chargeback Claims on Buyer’s behalf, and Buyer shall reimburse Seller for same. Buyer and Seller agree that (A) Seller’s financial liability for the Chargeback Claims shall be limited to those commercial customers with which Seller has chargeback obligations as of the Closing Date, and (ii) any such chargebacks issued by Seller shall be made in accordance with terms and conditions of Seller’s obligations as of the Closing Date with respect to each customer and shall be solely based on the terms and conditions of Seller’s agreements with the respective customer, as such terms and conditions existed as of the Closing Date. [...***...].

               (ii) If a Non-Responsible Party receives an invoice with respect to a Chargeback Claim that is the responsibility of the Responsible Party, such Non-Responsible Party shall promptly provide a copy of such invoice to the Responsible Party and such Responsible Party shall have ten (10) days following receipt of such invoice to notify the Non-Responsible Party that it intends to dispute such invoice. If the Responsible Party does not so notify the Non-Responsible Party within such 10-day

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period, such Non-Responsible Party shall be permitted to remit payment in respect of such invoice on the Responsible Party’s behalf and the Responsible Party shall reimburse the Non-Responsible Party for such payment pursuant to the terms of Section 5.10(e)(iii). If the Responsible Party provides such notice to the Non-Responsible Party within such 10-day period then the Responsible Party shall promptly initiate a dispute of such invoice at its sole cost and expense and shall be liable for all reasonable costs and expenses (including reasonable attorney fees) of the Non-Responsible Party required to prosecute the disputed invoice. In the event that an invoice is disputed under this Section 5.10(d)(ii) by the Responsible Party, the Non-Responsible Party shall not remit payment in respect of such invoice without the Responsible Party’s prior written consent; provided that any late fees, interest or other penalties that are ultimately owing due to delayed payment on such invoice shall be satisfied by the Responsible Party and provided further that notwithstanding the foregoing, the Non-Responsible Party may, in its sole discretion, pay any such disputed invoice without the consent of the Responsible Party, but in such case the Non-Responsible Party shall be entitled to reimbursement by the Responsible Party only with respect to amounts if any, that are finally owing following settlement of the related dispute.

               (iii) Subject to Section 5.10(e)(ii), to the extent a Non-Responsible Party processes Chargeback Claims which are the responsibility of Responsible Party, the Responsible Party shall reimburse the Non-Responsible Party on or before the date that is thirty (30) days following receipt of such invoices by such Non-Responsible Party, provided that such invoices describe in reasonable detail the payments made by such Non-Responsible Party.

          (f) Procedures.

     Subject to Sections 5.10(c)(iii), 5.10(d)(iii) and Section 5.10(e)(iii), within forty-five (45) days after the end of each calendar quarter [...***...], Buyer shall submit to Seller an invoice and supporting documentation with respect to all Product Returns, Government Rebates, Commercial Rebates and Chargeback Claims received during the preceding calendar quarter (or any other period for which invoices have not been previously submitted) for which Seller is financially responsible. Such invoice and the supporting documentation shall set forth the following detail: (A) where applicable, the stock-keeping-unit number and lot code of Returned Product and the date the Returned Product or claim for applicable rebate or chargeback was received by Buyer, if applicable; (B) if available, the name and address of the customer returning such Returned Product or making such claim; (C) if available, the reason given by such customer for the return or claim if applicable; and (D) the cost of performing such return or processing and paying such claim, provided, however, with respect to returns, such cost shall include only the cost of replacing, or refunding the allegedly defective Infergen, plus [...***...]. Unless Seller contests such invoice in accordance herewith, Seller shall remit the total invoiced amount to Buyer within ten (10) Business Days after its receipt of such invoice. In the event

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Seller in good faith disagrees with such invoice, the parties shall, for a period not to exceed ten (10) days, negotiate in good faith to resolve such dispute, and, in the event a resolution is not reached, the parties shall resolve such disagreement in the manner described in Section 9.3 hereof.

     5.11 Customer Billing.

          (a) In the event that Seller or any of its Affiliates receives payment after the Closing Date on invoices relating to the Product Business operated by Buyer or sales of products or services rendered by Buyer after the Closing Date, Seller will promptly notify Buyer of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Buyer without depositing such payment in an account of Seller, or such Affiliate, unless in error, and Seller, or such Affiliate, shall not be entitled to offset such payment against any payments due Seller from Buyer. In the event Seller receives an invoice or request for payment relating to the operation of the Product Business after the Closing Date, or with respect to any Assumed Liability, Seller will promptly notify Buyer of such request or invoice and forward the invoice and all other appropriate information to Buyer for payment.

          (b) In the event Buyer or any of its Affiliates receives payment after the Closing Date on invoices issued by Seller relating to an Excluded Asset (such as Seller’s accounts receivable as of the Closing Date) or relating to product sold or services rendered by Seller on or prior to the Closing Date or by Seller’s businesses other than the Product Business or the Transferred Assets, Buyer will promptly notify Seller of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Seller without depositing such payment in an account of Buyer, or such Affiliate, unless in error, and Buyer, or such Affiliate, shall not be entitled to offset such payment against any payments due Buyer from Seller. In the event Buyer receives an invoice or request for payment relating to an Excluded Asset (such as Seller’s accounts receivable as of the Closing Date) or relating to product sold or services rendered by Seller on or prior to the Closing Date, or by Seller’s businesses other than the Product Business or the Transferred Assets, Buyer will promptly notify Seller of such request or invoice and forward the invoice and all other appropriate information to Seller for payment.

     5.12 Covenant Not To Compete. Seller hereby agrees that, [...***...].

     5.13 Employees. [...***...]

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     [...***...].

     5.14 Regulatory Matters.

          (a) From and after the Effective Time, Buyer, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental or Regulatory Authority required by Law in respect of the Product Regulatory Approvals, including preparing and filing all reports (including adverse drug experience reports and product deviation reports) with the appropriate Governmental or Regulatory Authority (whether Infergen is sold before or after transfer of such Product Regulatory Approval) and shall indemnify and hold harmless Seller against any damages resulting from preparation, calculation or filing (or failure to file) such reports (provided Seller cooperates with Buyer as is reasonably necessary in the filing and preparation of such reports), (ii) except as expressly set forth in Section 5.15, submitting all applications for marketing authorizations, where such authorizations have not yet been granted, and variation of existing authorizations, (iii) taking all actions and conducting all communication with third parties in respect of Infergen sold pursuant to such Product Regulatory Approval (whether sold before or after transfer of such Product Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering, counterfeiting or contamination, and (iv) investigating all complaints and adverse drug experiences in respect of Infergen sold pursuant to such Product Regulatory Approval (whether sold before or after transfer of such Product Regulatory Approval).

          (b) From and after the Effective Time, Seller shall notify Buyer within three (3) Business Days (or sooner if required by Law) if Seller receives a complaint or a report of a life threatening serious adverse drug experience (a “Life Threatening SAE”) in respect of Infergen and within ten (10) Business Days (or sooner if required by Law) if Seller receives a complaint or a report of a non-life threatening serious adverse drug experience in respect of Infergen (a “Non-Life Threatening SAE” and together with a Life Threatening SAE, an “SAE”). In addition, Seller shall prepare and send quarterly reports to Buyer of any other adverse drug experience in respect to Infergen which is not an SAE and Seller shall cooperate with Buyer’s reasonable requests and use commercially reasonable efforts to assist Buyer in connection with the investigation of and response to any SAE or other complaint or adverse drug experience related to Infergen sold by Seller.

          (c) Seller shall, within [...***...] of the Closing, notify the FDA in writing of the transfer of ownership and all rights to the Product Regulatory Approvals to Buyer in accordance with all applicable Laws. Buyer concurrently shall notify FDA in writing of the change of ownership to the Product Regulatory Approvals.

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          (d) From and after the Effective Time, Buyer, at its cost, shall be solely responsible and liable for (i) conducting all voluntary and mandatory recalls, withdrawals, or field corrections of units of Infergen sold pursuant to a Product Regulatory Approval (whether sold before or after transfer of such Product Regulatory Approval), including recalls required or requested by any Governmental or Regulatory Authority, (ii) conducting all communications and submitting all required reports to any Governmental or Regulatory Authority concerning the recalls, withdrawals, or field corrections and (iii) notifying customers and consumers about the recalls, withdrawals, or field corrections; provided, however, that [...***...].

     5.15 Transfer of Infergen Manufacturing Site.

           (a) [...***...].

           (b) [...***...].

     5.16 Insurance Matters. Buyer acknowledges that coverage under all of Seller’s insurance policies will terminate with respect to the Transferred Assets and the Product Business effective as of the close of business on the Closing Date and that such termination shall not constitute a breach of Section 3.13 or Section 5.1. From and after the Closing Date, Buyer shall provide insurance coverage under its insurance policies to cover the Inventory located at the Seller’s dedicated facility operated pursuant to the Kenco Agreement, which policies shall provide substantially equivalent coverage insurance coverage as in existence at such facility as of the Closing Date.

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     5.17 Pricing Compliance Covenant.

          (a) Within 30 days after the Closing Date, Seller shall provide Buyer with information relating to the Product and the prices thereof which Buyer reasonably needs to comply with applicable rules and regulations relating to the Medicaid Drug Rebate Program (42 USC 1396r-8 and implementing regulations) and the Medicare Modernization Act Average Sales Price reporting requirement (42 USC 1395w-3a and implementing regulations). Without limiting the foregoing and the obligations of Seller set forth in Section 5.17(b), each party shall provide to the other within twenty-five (25) days after the end of each reporting period where necessary to enable the other party to comply with its submission requirements to the Centers for Medicare and Medicaid Services (or any successor agency), such of the following information as may be requested in writing by the other party no later than the last day of the applicable reporting period: (i) the “average manufacturer price” (as defined under the Social Security Act, 42 U.S.C. Sections 1396r-8(k)(1)) for the Product identified by NDC number; (ii) the “best price” (as defined under the Social Security Act, 42 U.S.C. Section 1396r-8(c)(1)(C)) for the Product identified by the NDC number; (iii) the “average sales price” (as defined under the Social Security Act, 42 U.S.C. Section 1395w-3a) for the Product identified by the NDC number; and (iv) any additional data or other information related to such Medicaid and Medicare issues reasonably requested in writing by such other party.

          (b) Seller shall report to Buyer, within ten (10) days after the end of the first month and calendar quarter after the Closing Date, the Sales Information relating to sales of Products by Seller prior to Closing, in sufficient time to permit Buyer to complete any analysis necessary for governmental reporting of such information, complete any necessary governmental reporting forms and submit the required report(s) to the Center for Medicaid and Medicare Services, Public Health Services and the Department of Veterans Affairs. For purposes of this Section 5.17(b), “Sales Information” shall mean all information relating to the Product and the sales thereof that Buyer reasonably needs to comply with the above-mentioned reporting, including the data required to calculate best price and data from which average manufacturer’s price, average sales price, as well as the Non-Federal Average Manufacture Price may be calculated (including gross sales, returns, invoice quantity, return quantity, chargeback dollars, chargeback units, and chargeback sales).

     5.18 Transitional Trademark License.

          (a) As of the Effective Time and for a period of up to twenty-four months (24) months after the Closing, Seller hereby grants to Buyer (or its Affiliates responsible for operating the Product Business after the Closing Date or any third-party manufacturers used by Buyer in connection with the Product Business after the Closing), and Buyer hereby accepts, a non-exclusive, non-transferable, non-sublicenseable (except with respect to such third-party manufacturers or Buyer’s Affiliates), royalty-free, paid-up, license in the Territory under all Trademarks and trade dress owned, licensed or controlled by Seller, aside from the Product Trademarks and Product Trade Dress, that are used in connection with the Product Business and the Assumed Liabilities as of the Execution Date (“Seller Marks”), for use solely in connection with: (i) Buyer’s sale of the Inventory in the Territory, and (ii) Buyer’s use of the Promotional Materials existing as of the Closing Date and transferred to Buyer as part of the Purchased Assets, and (iii) the labeling on the Infergen manufactured by or on behalf on Buyer as of and after the Effective Time; provided, however, that such license is being granted solely for transitional purposes and Buyer shall therefore, notwithstanding the time period provided for above, use its commercially reasonable efforts to as

32.

quickly as is reasonably possible cease its use of the Seller Marks after the Effective Time, but in no event later than twenty-four months (24) months after the Closing Date, or such later date (not to exceed an additional three (3) months) as may be agreed to by Seller, in its sole discretion, if Buyer is unable to revise the labeling on the Infergen to remove the applicable Seller Marks due to applicable Law.

          (b) To the extent that Buyer is exercising the transitional trademark license in this Section 5.18, Buyer shall not: (i) add any other labels or marks to, or otherwise alter, the Seller Marks as used in the Product Business as of the Closing Date (except as required by Law); (ii) change in any way the style of the Seller Marks as used in the Product Business as of the Closing Date; or (iii) otherwise use the Seller Marks in any manner other than as specifically provided in this Section 5.18.

          (c) Buyer acknowledges Seller’s ownership of the Seller Marks, shall do nothing inconsistent with such ownership, agrees that all use of the Seller Marks by Buyer shall inure to the benefit and be on behalf of Seller, and agrees not to challenge Seller’s title to the Seller Marks. Nothing in this Agreement shall give Buyer any right, title or interest in the Seller Marks other than the right to use the Seller Marks strictly in accordance with this Section 5.18. All use of the Seller Marks by Buyer under this Section 5.18 shall conform to the standards followed by Seller in operating the Product Business prior to the Closing Date, and Seller shall have the right to review the standards used by Buyer to operate the Product Business after the Closing Date to ensure Buyer’s compliance with this requirement related to the Seller Marks.

          (d) Buyer shall not have the right to, and shall not, sublicense, assign, pledge, grant or otherwise encumber or transfer to any Third Party any rights licensed by Seller to Buyer under this Section 5.18 without Seller’s prior written consent. The parties understand that, in addition to all other legal remedies, Seller shall be entitled to immediate injunctive relief to enforce the terms of this Section 5.18.

          (e) Nothing in this Section 5.18, or any other provision of this Agreement or any provision of the Ancillary Agreements, shall grant the Buyer any rights in any of Seller’s Internet domain names, registrations or applications for registration, or renewals thereof, registered in the United States or any other country or jurisdiction throughout the world, except as such Internet domain names, registrations or applications for registration, or renewals thereof are included as part of the Transferred Assets.

          (f) Following the Closing, Buyer shall promptly and at its own expense use commercially reasonable efforts to obtain such FDA approvals necessary for the printed labels, labeling and packaging materials, including printed carton, container labels and package inserts, used by Buyer and bearing Buyer’s name for, or in connection with, packaging of Infergen to be manufactured after the Closing and carry out the necessary changes promptly upon receipt of the FDA approvals.

     5.19 InterMune Agreement. [...***...]

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     [...***...].

ARTICLE VI

CONDITIONS TO CLOSING

     6.1 Conditions Precedent to Obligations of Buyer and Seller. The respective obligations of Buyer and Seller to consummate the transactions contemplated by this Agreement on the Closing Date are subject to the satisfaction or waiver at or prior to the Closing Date of the following conditions:

          (a) Injunction. No preliminary or permanent injunction or other order shall have been issued by any court or by any Governmental or Regulatory Authority which enjoins, restrains, prohibits or makes illegal pursuant to applicable Law the transactions contemplated by this Agreement on the Closing Date.

          (b) Authorizations. (i) All authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods, imposed by, any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement, in each case as set forth on Section 6.1(b) of the Seller Disclosure Letter, shall have been obtained or made, and (ii) the waiting period (and any extensions thereof) for consummation of the transactions contemplated hereby prescribed by the HSR Act shall have expired or been earlier terminated.

     6.2 Conditions Precedent to Buyer’s Obligations. Buyer’s obligation to consummate the transactions contemplated hereby shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Buyer’s sole discretion, in writing by Buyer:

          (a) Representations and Warranties. The representations and warranties of Seller contained in Article III shall be true and correct (without giving effect to any limitation as to “materiality” or “Product Material Adverse Effect” set forth therein) at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case

***Confidential Treatment Requested

34.

as of such earlier date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, result in a Product Material Adverse Effect.

          (b) Performance of Obligations by Seller. Seller shall have performed in all material respects all covenants, agreements and obligations that Seller is required to perform under this Agreement on or before the Closing, including, without limitation, the delivery of the items listed in Section 2.2 hereof.

          (c) No Product Material Adverse Effect. At any time after the Execution Date, there shall not have been any Product Material Adverse Effect, and no event shall have occurred or circumstance or condition shall exist that would reasonably be expected to result in such a Product Material Adverse Effect.

          (d) Material Consents. All Material Consents shall have been duly obtained and shall be in full force and effect on the Closing Date.

          (e) Closing Certificate. Seller shall have delivered to Buyer a certificate (“Seller’s Closing Certificate”), dated as of the Closing Date and executed by a duly elected, qualified and acting officer of Seller certifying:

               (i) resolutions have been adopted by the board of directors of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements executed in connection herewith by Seller, and that such resolutions, approvals and consents have not been amended or modified in any respect and remain in full force and effect as of the date thereof (or, in the alternative, a statement to the effect that no such board of directors approval is necessary regarding the execution, delivery and performance of this Agreement and the Ancillary Agreement); and

               (ii) the conditions specified in this Section 6.2(a), (b) and (c) have been fulfilled; and

          (f) Financing. On or prior to the Closing, Buyer shall have consummated the Financing or otherwise obtained the funds necessary to consummate the transaction contemplated hereby.

     6.3 Conditions Precedent to Seller’s Obligations. Seller’s obligation to consummate the transactions contemplated hereby shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Seller’s sole discretion, in writing by Seller:

          (a) Representations and Warranties. The representations and warranties of Buyer contained in Article IV shall be true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth therein) at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date) except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations under this Agreement or the Ancillary Agreements.

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          (b) Performance of Obligations by Buyer. Buyer shall have performed in all material respects all covenants, agreements and obligations that Buyer is required to perform under this Agreement on or before the Closing, including, without limitation, the delivery of the items listed in Section 2.3 hereof.

          (c) Closing Certificate. Buyer shall have delivered to Seller a certificate (“Buyer’s Closing Certificate”), dated as of the Closing Date and executed by a duly elected, qualified and acting officer of Buyer certifying:

               (i) resolutions have been adopted by the board of managers of Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements executed in connection herewith by Buyer, and that such resolutions, approvals and consents have not been amended or modified in any respect and remain in full force and effect as of the date thereof (or, in the alternative, a statement to the effect that no such board of managers approval is necessary regarding the execution, delivery and performance of this Agreement and the Ancillary Agreement); and

               (ii) the conditions specified in this Section 6.3(a) and (b) have been fulfilled.

ARTICLE VII

TERMINATION

     7.1 Termination. This Agreement may be terminated at any time prior to the Closing by written notice by the terminating party to the other party (except in the case of termination pursuant to Section 7.1(a) hereof, which requires mutual agreement of both parties):

          (a) by mutual written consent of Buyer and Seller;

          (b) by either Buyer or Seller if the transactions contemplated hereby have not been consummated on or before [...***...] (the “Outside Date”); provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the primary cause of or materially contributed to the failure of the Closing to occur on or before the Outside Date;

          (c) by either Buyer or Seller, if (i) a court of competent jurisdiction or other Governmental or Regulatory Authority shall have issued a nonappealable final order, decree or ruling or taken any other nonappealable final action, in each case, having the effect of permanently restraining, enjoining or otherwise prohibiting the Closing and the transactions contemplated hereby, or (ii) a Governmental or Regulatory Authority shall have initiated any order to enact, issue, promulgate, enforce or enter or shall have enacted, issued, promulgated, enforced or entered any order, executive order, stay, decree, judgment or injunction or statute, rule, regulation which is in effect (whether temporary, preliminary or permanent) that prevents or prohibits the consummation of the transactions contemplated by this Agreement or makes it illegal for either party hereto to perform its obligations hereunder; provided, however, that the right to terminate this Agreement

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under this Section 7.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the primary cause of or materially contributed to such action;

          (d) by Seller, if Buyer has breached any representation, warranty, covenant or agreement set forth in this Agreement which (i) would result in a failure of a condition set forth in Section 6.3(a) or (b) hereof, and (ii) is not cured in all material respects within thirty (30) calendar days after written notice thereof; and

          (e) by Buyer, if Seller has breached any representation, warranty, covenant or agreement set forth in this Agreement which (i) would result in a failure of a condition set forth in Section 6.2(a), (b) or (c) hereof, and (ii) is not cured in all material respects within thirty (30) calendar days after written notice thereof.

     7.2 Effect of Termination.

          (a) Liability. In the event of termination of this Agreement as provided in Section 7.1 hereof, this Agreement shall immediately become void and there shall be no further Liability on the part of Buyer or Seller, or their respective Affiliates or representatives; provided, however, that notwithstanding the foregoing (i) to the extent that such termination results from the breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement, no termination of this Agreement pursuant to Section 7.1 hereof shall relieve any party of Liability for a breach of any provision of this Agreement occurring before such termination, (ii) no termination of this Agreement pursuant to Section 7.1 hereof shall relieve or limit the Liability of any party to this Agreement for any fraudulent or willful breach of this Agreement. In the event that this Agreement is terminated, Buyer will redeliver all documents, work papers and other materials of Seller relating to the transactions contemplated herein, whether obtained before or after the execution hereof, in accordance with the terms of the Confidentiality Agreement, and (iii) Section 5.2 (relating to confidentiality), this Section 7.2 and Article IX hereof shall remain in full force and effect notwithstanding such termination.

          (b) Fees and Expenses. Except as otherwise expressly provided in this Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Closing is consummated.

ARTICLE VIII

INDEMNIFICATION

     8.1 Survival of Representations, Warranties and Agreements. Other than the representations and warranties contained in Sections 3.1 (Corporate Existence), 3.2 (Corporate Power and Authority), 3.6 (Title to Transferred Assets) and 3.12 (Brokers Fees), which shall survive indefinitely, and those in Section 3.4 (Tax Matters), (together with Sections 3.1, 3.2, 3.6 and 3.12, (the “Excluded Representations”), which shall survive until [...***...] following any applicable statute of limitations, all representations, warranties and covenants to be performed prior to the Closing made in this Agreement by Buyer or Seller shall survive the execution and delivery of this Agreement and shall remain in full force and effect for a period of

***Confidential Treatment Requested

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[...***...] following the Closing Date and shall be deemed to have been relied upon by each other party hereto, notwithstanding any investigation made by or on behalf of such party; provided that if notice of any claim for indemnification is given pursuant to Section 8.3 prior to such time and such notice describes with specificity the circumstances with respect to which such indemnification relates, such indemnification claim shall survive until such time as such claim is finally resolved. All covenants made in this Agreement to be performed after Closing shall survive execution and delivery of this Agreement indefinitely until fully performed, at which time such covenants will expire without any further act by either party.

     8.2 Indemnification.

          (a) Seller’s Indemnification Obligations. Seller shall indemnify, defend and hold harmless Buyer and its Affiliates and their respective officers, managers, directors, agents, employees and representatives (collectively, the “Buyer Indemnitees”) from and against any and all losses, costs, claims, Liabilities, damages, lawsuits, fines, penalties, judgments, assessments, demands and expenses (including attorneys’, accountants’ and other professionals’ fees), and all amounts paid in the investigation, defense or settlement of any of the foregoing (collectively, “Losses”) they may suffer, sustain or incur to the extent that such Losses are based on, result from or arise in connection with:

               (i) the breach of any representation or warranty made by Seller in Article III hereof or in any Ancillary Agreement (without regard to any qualification as to “materiality” or “Product Material Adverse Effect” contained therein);

               (ii) any failure of Seller to fully perform or observe any covenant or agreement to be performed or observed by Seller pursuant to this Agreement or any Ancillary Agreement (without regard to any qualification as to “materiality” or “Product Material Adverse Effect” contained therein);

               (iii) the Excluded Liabilities and Excluded Assets;

               (iv) any claim to the extent relating to the Product or the Product Business arising out of or related to conditions existing or actions taken or actions required to be taken on or prior to the Effective Time and not disclosed in this Agreement or the Seller Disclosure Letter;

               (v) the operation of the Seller’s business, including the Product Business, on or prior to the Effective Time;

               (vi) any Liability of Seller under the Amgen Agreements arising on or prior to the Effective Time (other than the Amgen Materials) and any Liability relating to the Excluded Amgen Material; or

               (vii) subject to Section 5.19, any breach of the representations and warranties of InterMune set forth in Section 3.10 of the InterMune Agreement.

          (b) Buyer’s Indemnification Obligations. Buyer shall indemnify, defend and hold harmless Seller and its Affiliates and their respective officers, managers, directors, agents,

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employees and representatives (collectively, the “Seller Indemnitees”) from and against any and all Losses they may suffer, sustain or incur to the extent that such Losses are based on, result from, or arise in connection with:

          (i) the breach of any representation or warranty made by Buyer in Article IV hereof or in any Ancillary Agreement (without regard to any qualification as to “materiality” or “Product Material Adverse Effect” contained therein);

          (ii) any failure of Buyer to fully perform or observe in any material respect any covenant or agreement to be performed or observed by Buyer pursuant to this Agreement or any Ancillary Agreement (without regard to any qualification as to “materiality” or “Product Material Adverse Effect” contained therein);

          (iii) the Transferred Assets following the Effective Time;

          (iv) any claim relating primarily to the Product or the Product Business arising out of or related to conditions existing or actions taken or actions required to be taken following the Effective Time;

          (v) the operation of the Product Business following the Effective Time; or

          (vi) the Assumed Liabilities.

     8.3 Indemnification Procedures.

          (a) In the event a party’s right to indemnification hereunder arises out of or results from a Third Party claim (a “Third Party Claim”), each indemnified party (each, an “Indemnified Party”) shall notify the indemnifying party (the “Indemnifying Party”) in writing (and in reasonable detail) of the Third Party Claim within twenty (20) Business Days after receipt by such Indemnified Party of notice of the Third Party Claim (the “Indemnification Claim Notice”), or otherwise becoming aware of the existence or threatened existence thereof. Failure to give such notice shall not constitute a defense, in whole or in part, to any claim by an Indemnified Party hereunder except to the extent the rights of the Indemnifying Party are actually prejudiced by such failure to give notice.

          (b) At its option, the Indemnifying Party may assume at its sole expense the defense of any Third Party Claim by giving written notice to the Indemnified Party within thirty (30) calendar days after the Indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of a Third Party Claim by the Indemnifying Party shall not be construed as an acknowledgment that the Indemnifying Party is liable to indemnify any Indemnified Party in respect of the Third Party Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Party’s claim for indemnification. Upon assuming the defense of a Third Party Claim, the Indemnifying Party shall be entitled to appoint counsel at its sole expense in the defense of the Third Party Claim. In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall promptly deliver to the Indemnifying Party all original notices and documents (including court papers) received by any Indemnified Party in connection with the Third Party Claim. Should the Indemnifying Party

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assume the defense of a Third Party Claim, except as provided in Section 8.3(c) below, the Indemnifying Party shall not be liable to the Indemnified Party or any other Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party or other Indemnified Party in connection with the analysis, defense or settlement of the Third Party Claim. In the event that it is ultimately determined that the Indemnifying Party is not obligated to indemnify, defend or hold harmless an Indemnified Party from and against the Third Party Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Losses incurred by the Indemnifying Party in its defense of the Third Party Claim with respect to such Indemnified Party.

          (c) Without limiting Section 8.3(b), any Indemnified Party shall be entitled to, at its sole expense, participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnified Party’s own expense unless (A) the employment thereof has been specifically authorized in advance by the Indemnifying Party in writing, or (B) the Indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 8.3(b) (in which case the Indemnified Party shall control the defense).

          (d) With respect to any Losses relating solely to the payment of money damages in connection with a Third Party Claim that will not result in the Indemnified Party’s becoming subject to injunctive or other relief, if the Indemnifying Party has assumed the defense of a Third Party Claim in accordance with Section 8.3(b), the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of Losses on such terms as the Indemnifying Party, in its reasonable discretion, shall deem appropriate; provided, however, that the Indemnifying Party shall have obtained a full release from such Third Party with respect to such Third Party Claim in connection with any such settlement or disposition which release shall also cover the Indemnified Party. With respect to all other Losses in connection with Third Party Claims, where the Indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 8.3(b), the Indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Losses; provided that it obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). If the Indemnifying Party has not assumed the defense of a Third Party Claim in accordance with Section 8.3(b) and the 30-day period set forth in Section 8.3(b) has elapsed, then with respect to any Losses relating solely to the payment of money damages in connection with a Third Party Claim that will not result in the Indemnified Party’s becoming subject to injunctive or other relief, the Indemnified Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of Losses on such terms as the Indemnified Party, in its reasonable discretion, shall deem appropriate; provided, however, that the Indemnified Party shall have obtained a full release from such Third Party in connection with any such settlement or disposition which release shall also cover the Indemnifying Party. Except as described in the immediately preceding sentence, the Indemnifying Party shall not be liable for any settlement or other disposition of Losses by an Indemnified Party that is reached without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

          (e) Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall, and shall cause each other Indemnified Party to, cooperate in the defense or prosecution thereof and shall furnish such records, information and

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testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party Claim, and making Indemnified Parties and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the Indemnified Party controls the defense of the claim, the Indemnifying Party shall cooperate with the Indemnified Party on the terms described above.

     8.4 Payment of Losses. An Indemnified Party shall be paid in cash by an Indemnifying Party the amount to which such Indemnified Party may become entitled by reason of the provisions of this Article VIII, within fifteen (15) days after such amount is determined either by mutual agreement of the parties or on the date on which both such amount and an Indemnified Party’s obligation to pay such amount have been determined by a final, nonappealable judgment of a court or administrative body having jurisdiction over such proceeding. Buyer shall have the right (but not the obligation) to set-off against the 12-Month Payment or the 18-Month Payment, as applicable, any Losses incurred by Buyer which are finally determined in a nonappealable judgment by a judicial or administrative body of competent jurisdiction to be owed by the Seller to any Buyer pursuant to Seller’s indemnification obligations under this Agreement, which amounts remain unpaid for thirty (30) days after the date of such final determination. In the event that a Buyer Indemnitee elects to exercise a right of set-off under this Section 8.4 (the “Electing Buyer”), such Electing Buyer shall deliver a written notice to the Seller specifying the amount thereof prior to the 12-Month Anniversary Date or 18-Month Anniversary Date, as applicable.

     8.5 Limitations.

          (a) The indemnification provided for in Section 8.2(a)(i) shall not apply (i) to any individual item where the Losses relating thereto is less than $10,000 and any such items shall not be aggregated for purposes of exceeding the Basket, and (ii) unless and until the aggregate Losses for which Buyer Indemnitees seek or have sought indemnification hereunder, as stated in one or more claim notices, exceed a cumulative aggregate of [...***...] (the “Basket”), [...***...]. In no event shall the aggregate Liability of Seller for Losses pursuant to Sections 8.2(a)(i) and 8.2(a)(ii) (as Section 8.2(a)(ii) relates to an unintentional breach of Section 5.1(a) or Section 5.1(b) only) exceed [...***...] (the “Cap”); provided, however, that neither the Basket nor the Cap shall apply to any indemnification claim (A) involving fraud on the part of Seller, or (B) based upon a breach of any of the Excluded Representations.

          (b) The indemnification provided for in Section 8.2(b)(i) shall not apply (i) to any individual item where the Losses relating thereto is less than [...***...] and any such items shall not be aggregated for purposes of exceeding the Basket, and (ii) unless and until the aggregate Losses for which Seller Indemnitees seek or have sought indemnification hereunder, as stated in one or more claim notices, exceed the Basket, [...***...]. In no event shall the aggregate Liability of the Buyer for Losses pursuant to Section 8.2(b)(i) exceed the Cap; provided, however, that neither the Basket nor the Cap shall apply to any indemnification claim (i) involving fraud on the part of Buyer,

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or (ii) based upon a breach of Sections 4.1 (Corporate Existence), 4.2 (Corporate Power and Authority), 4.4 (Financing) or 4.6 (Brokers Fees).

          (c) Notwithstanding anything in this Agreement to the contrary, the term Losses shall not include any consequential, special or incidental damages, claims for lost profits, or punitive or similar damages, except with respect to Losses actually awarded to a Third Party in a claim brought against a Buyer Indemnitee or a Seller Indemnitee, as the case may be.

          (d) Each party hereto shall be entitled to rely upon, and shall be deemed to have relied upon, all representations and warranties set forth in the Ancillary Agreements, in Article III, with respect to Seller, and Article IV, with respect to Buyer, and all covenants of each other party set forth in this Agreement and in the Ancillary Agreements which have been or are made in favor of such party, and the rights of Buyer or Seller under this Article VIII shall not be affected notwithstanding (i) any investigation or examination conducted with respect to, or any Knowledge acquired (or capable of being acquired) about the accuracy or inaccuracy of or compliance with, any representation, warranty, covenant, agreement, undertaking or obligation made by or on behalf of the parties hereto, or (ii) the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant, agreement, undertaking or obligation, or (iii) the Closing hereunder.

     8.6 Exclusive Remedy. Except in the case of fraud, in which case the Buyer Indemnitees and the Seller Indemnitees reserve any and all rights and remedies available to them, after the Closing, the indemnities provided in this Article VIII shall constitute the sole and exclusive remedy of any Indemnified Party for Losses arising out of, resulting from or incurred in connection with any claims regarding matters arising under or otherwise relating to this Agreement; provided, however; that this exclusive remedy for Losses does not preclude a party from bringing an action for specific performance or other equitable remedy to require a party to perform its obligations under this Agreement.

     8.7 Calculation of Losses; Mitigation. In calculating amounts payable to an Indemnified Party, the amount of the indemnified Losses shall not be duplicative of any other Loss for which an indemnification claim has been made and shall be computed net of (i) payments actually received by the Indemnified Party under any insurance policy with respect to such Losses (which such Indemnified Party shall use commercially reasonable efforts to recover promptly and after giving effect to any expenditures to obtain such payments and any applicable deductible or retention), (ii) any prior or subsequent amounts actually recovered by the Indemnified Party from any Person with respect to such Losses (which such Indemnified Party shall use commercially reasonable efforts to recover promptly) and (iii) any Tax benefit actually realized by the Indemnified Party with respect to such Losses (which such Indemnified Party shall use commercially reasonable efforts to recover promptly). Each Indemnified Party shall act in good faith and shall use its commercially reasonable efforts to mitigate any of its Losses; provided, that in no event shall an Indemnified Party be required to incur costs in connection therewith in excess of the minimum amount it deems, in good faith, necessary to remedy the breach which gives rise to the Losses.

42.

     8.8 Treatment of Indemnification Payments. Any indemnification payment by Seller pursuant to this Article VIII shall, to the extent permitted by Law, be treated as an adjustment to the purchase price for the Transferred Assets.

ARTICLE IX

MISCELLANEOUS PROVISIONS

     9.1 Definitions.

          (a) For purposes of this Agreement, the following terms shall have the meanings specified below:

               “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

               “Amgen” means Amgen Inc., a Delaware corporation.

               “Amgen Agreements” means the Amgen License Agreement, Amgen Consent to Assignment Agreement and Amgen Quality Agreement.

               “Amgen Assignment, Assumption and Consent Agreement” means the Assignment, Assumption and Consent Agreement, dated June 15, 2001, by and among Amgen, InterMune and Yamanouchi Europe, B.V., as amended, which agreement was subsequently assigned by InterMune to Seller pursuant to the Consent to Assignment Agreement, dated November 23, 2005.

               “Amgen Consent” means that certain consent to be executed by Amgen, Buyer and Seller pursuant to which Amgen (i) consents to Seller assigning to Buyer the Amgen Agreements, and (ii) releases Valeant Pharmaceuticals International from its absolute and unconditional performance and payment guarantee of Seller’s obligations under the Amgen Agreements.

               “Amgen Consent to Assignment Agreement” means the Consent to Assignment Agreement, dated November 23, 2005, among InterMune, Amgen, Seller and Valeant Pharmaceuticals International.

               “Amgen License Agreement” means that certain License and Commercialization Agreement, dated June 15, 2001, by and between Amgen and InterMune, as amended by that certain Amendment No. 1, dated April 25, 2002, that certain Amendment No. 2, dated December 31, 2004, that certain Amendment No. Three, dated January 13, 2005, and that certain Amendment No. Four, dated December 22, 2005, which agreement, as so amended, was subsequently further amended and assigned by InterMune to Seller pursuant to the Amgen

43.

Consent to Assignment Agreement, which agreement, as so amended and assigned, was subsequently further amended by that certain Amendment No. Five, dated December 14, 2007.

               “Amgen License Rights” means all of the rights of Seller, including but not limited to Seller’s rights as licensee and sublicensee, under the Amgen License Agreement.

               “Amgen Quality Agreement” means the Quality Agreement, dated March 22, 2002, between Amgen and InterMune, which agreement was subsequently assigned by InterMune to Seller pursuant to the Amgen Consent to Assignment Agreement.

               “Ancillary Agreements” means, collectively, the Transition Services Agreement, the Bill of Sale, the General Assignment, the Patent Assignment and the Trademark Assignment.

               “BI Austria” means Boehringher Ingelheim Austria GmbH, an Austrian corporation.

               “BI Austria Agreement” means that certain Data Transfer, Clinical Trial and Market Supply Agreement, dated November 3, 2005, by and between InterMune and BI Austria, subsequently assigned by InterMune to Seller and including all subsequent amendments thereto.

               “BLA” means the application for Infergen prepared pursuant to applicable FDA regulations and filed with the FDA for authorization to market Infergen within the United States.

               “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York are authorized by Law to close.

               “Code” means the Internal Revenue Code of 1986, as amended.

               “Confidentiality Agreement” means the agreement by and between Buyer and Seller dated as of June 1, 2007.

               “Contract” means any written loan or credit agreement, note, bond, mortgage, letter of credit, indenture, understanding, indemnity, commitment, assurance, lease, sublease, purchase order, arrangement, sales order or other agreement, instrument, concession, franchise or license.

               “Employee Liabilities” shall mean all Liabilities related to Seller’s current or former employees, including (i) compensation or other amounts payable to such employees, including, without limitation, bonuses, accrued vacation, fringe, pension or profit sharing benefits, expense reimbursements or severance pay payable to any employee or former employee of Seller for any period relating to the employment of any such period with Seller at any time prior to the Closing Date, (ii) claims for medical, dental, life insurance, health, accident or disability benefits brought by or in respect of Seller whose claims relate to events occurring prior to the Closing Date, (iii) workers’ compensation claims of any employees or former employees of Seller or “leased” employees of Seller which arise out of events occurring prior to the Closing Date, and (iv) any damages or Liabilities arising from any claims, actions, litigations or proceedings brought by any current or former employee of Seller. It is clarified for the removal

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of any doubt that Employee Liabilities shall not include any Liabilities relating to the Transferred Employees after the Effective Time.

               “Encumbrance” means any lien, pledge, hypothecation, assessment, charge, escrow, mortgage, prior assignment, title retention agreement, indenture, deed of trust, levy, easement, right of way, servitude, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, community property interest, legend, defect, impediment, exception, reservation, limitation, preemptive right, impairment, imperfection of title, conditional sale, condition or restriction of any nature, whether or not relating to the extension of credit or the borrowing of money, whether imposed by Contract, Law, equity or otherwise.

               “Excluded Amgen Materials” means [...***...].

               “Excluded Assets” means all assets, rights, employees, claims, Contracts, Intellectual Property and properties of Seller, other than the Transferred Assets.

               “Excluded BI Materials” means [...***...].

               “Excluded Liabilities” means all Liabilities or obligations of Seller (other than the Assumed Liabilities), including any obligation or Liabilities of Seller created as a result of this Agreement, including, without limitation, any Liabilities relating to (i) the Inventory Disposal Costs, (ii) the Excluded Amgen Materials, (iii) the InterMune Milestone Payment, (iv) the Infergen Manufacturing Transfer Payment, (v) Taxes for the Pre-Closing Period, (vi) the Employee Liabilities, (vii) the Product Returns for which Seller is responsible pursuant to Section 5.10(b), (viii) the Government Rebates for which Seller is responsible pursuant to Section 5.10(c), (ix) the Commercial Rebates for which Seller is responsible pursuant to Section 5.10(d), (x) the Chargeback Claims for which Seller is responsible pursuant to Section 5.10(e), (xi) performance under Section 2.1(c) of the InterMune Agreement prior to the Closing, (xii) the Excluded BI Materials and (xiii) [...***...].

               “FDA” means the United States Food and Drug Administration, or any successor agency thereto having the administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products, delivery systems and devices in the United States.

               “Governmental or Regulatory Authority” means any foreign, domestic, federal, territorial, state or local court, tribunal or arbitral body, governmental authority, quasi-

***Confidential Treatment Requested

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governmental authority or instrumentality, or any regulatory, administrative or other agency, or any political or other subdivision, department, intermediary, carrier, commission or branch of any of the foregoing.

               “HSR Act” means the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

               “IND” means an Investigational New Drug Application filed with the FDA, or the equivalent application or filing filed with any equivalent agency or governmental authority outside the United States (including any supra-national agency such as in the European Union) necessary to commence human clinical trials in such jurisdiction.

               “Infergen” means the finished pharmaceutical product containing interferon alfacon-1 in the formulation sold by Seller under the trademark Infergen^® prior to the Closing (which shall specifically include any product sold under BLA #103663 originally approved by the FDA on October 6, 1997, as supplemented and amended from time to time thereafter).

               “Infergen Manufacturing Transfer Payment” means [...***...].

               “Instruments of Transfer” means such instruments and documents in addition to the Ancillary Agreements that are necessary pursuant to applicable Law to effectuate and consummate the transactions contemplated hereby, including, bills of sale, assumption agreements, assignment and assumption of contracts and other conveyance documents in the forms agreed-upon in good faith by the parties hereto.

               Intellectual Property” means all domestic and foreign (i) trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications, business marks, brand names, trade names, trade dress, names, logos and slogans, internet domains and URLs, and all goodwill associated therewith; (ii) patents, patent rights, provisional patent applications, patent applications, designs, registered designs, registered design applications, industrial designs, industrial design applications and industrial design registrations, including any and all divisionals, continuations, continuations in part, extensions, substitutions, renewals, registrations, revalidations, reexaminations, reissues or additions, including supplementary certificates of protection, of or to any of the foregoing items; (iii) copyrights, copyright registrations, copyright applications, original works of authorship fixed in any tangible medium of expression, including literary works (including all forms and types of computer software, including all source code, object code, firmware, development tools, files, records and data, and all documentation related to any of the foregoing), musical, dramatic, pictorial, graphic and sculptured works; (iv) trade secrets, technology, discoveries and improvements, know how, proprietary rights, formulae, confidential and proprietary information, technical information, techniques, inventions, designs, drawings, procedures, processes, models, formulations, manuals and systems, whether or not patentable or copyrightable, including all biological, chemical, biochemical, toxicological, pharmacological and metabolic material and information and data relating thereto and formulation, clinical, analytical and stability information and data which

***Confidential Treatment Requested

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have actual or potential commercial value and are not available in the public domain; and (v) all other intellectual property or proprietary rights, in each case whether or not subject to statutory registration or protection.

               “InterMune” means InterMune, Inc., a California corporation.

               “InterMune Agreement” means the Product Acquisition Agreement by and between Seller and InterMune, dated November 28, 2005.

               “InterMune Milestone Payment” means [...***...].

               “Kenco” means Kenco Group, Inc.

               “Kenco Agreement” means the Master Warehousing Agreement dated February 9, 2004 by and between Valeant Pharmaceuticals International and Kenco, as amended.

               “Knowledge of Seller” or “Seller’s Knowledge” means [...***...].

               “Law” means any law (both common and statutory law and civil and criminal law), rule, regulation, regulatory code (including, without limitation, statutory instruments, guidance notes, circulars and decisions), standard, ordinance, treaty, convention, directive or other pronouncement having the effect of law of any foreign jurisdiction, the United States or any state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

               “Liability” means, collectively, any tax, debt, commitment, obligation, claim, damage, duty or liability of any kind, character or nature, whether known or unknown, asserted or unasserted, direct or indirect, secured or unsecured, fixed, absolute or contingent, matured or unmatured, accrued or unaccrued, liquidated or unliquidated, whether in contract, tort, strict liability or otherwise, including any product liability, regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles and regardless of whether such debt, obligation, duty or liability is immediately due and payable, regardless of when asserted.

               “Material Consents” means all consents, waivers, authorizations and approvals of any Person required in connection with the consummation of the transactions contemplated hereby that are set forth on Section 6.2(d) of the Seller Disclosure Letter (including the Amgen Consent).

               “NDA” means a New Drug Application (as more fully defined in 21 C.F.R. 314.5 et seq.) and all amendments and supplements thereto filed with the FDA, or the equivalent application filed with any equivalent agency or governmental authority outside the United States (including any supra-national agency such as in the European Union), including all documents,

***Confidential Treatment Requested

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data, and other information concerning a pharmaceutical product which are necessary for gaining Regulatory Approval to market and sell such pharmaceutical product.

               “NDC” means the “National Drug Code,” which is the eleven digit code registered and listed with the FDA with respect to pharmaceutical products.

               “Non-Solicitation Agreement” means the agreement by and between Buyer and Seller dated as of October 11, 2007.

               “Other Intellectual Property” shall mean the Intellectual Property listed on Schedule 1.1(b), and which is not included in the Transferred Assets but will be conveyed to Buyer as of the Effective Time in accordance with the terms of Section 1.1(b).

               “Permitted Encumbrances” means (i) the Encumbrances and exceptions set forth in Section 3.6 of the Seller Disclosure Letter, and (ii) Encumbrances imposed by any Governmental or Regulatory Authority for Taxes not yet due and payable or any taxes that Seller is contesting in good faith.

               “Person” shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental or Regulatory Authority (or any department, agency or political subdivision thereof).

               “Product Business” means the manufacturing, using, developing, promoting, selling, offering to sell, or importing of the Product for sale in the Territory as currently being conducted by Seller.

               “Product Copyrights” means, as owned, licensed or controlled by Seller and exclusively related to the Product Business, the copyrights (whether or not registered) and registrations and applications for registration or renewals thereof, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, and all goodwill associated therewith listed on Section 1.1(a)(iii)(A) of the Seller Disclosure Letter.

               “Product Domains” means, as owned, licensed or controlled by Seller and exclusively related to the Product Business, the internet domains and URLs in the Territory, listed on Section 1.1(a)(iii)(B) of the Seller Disclosure Letter.

               “Product Know-How” means, as owned, licensed or controlled by Seller and exclusively related to the Product Business, including as developed in connection with clinical trials, the research and development information, validation methods and procedures, unpatented inventions, know-how, trade secrets, technical or other data or information, or other materials, methods, procedures, processes, materials, developments or technology, including all biological, chemical, clinical, manufacturing and other information or data, other than such know-how which is or becomes the subject of a patent or of a provisional or filed patent application.

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               “Product Material Adverse Effect” means [...***...].

               “Product Patents” means, as owned, licensed or controlled by Seller and exclusively related to the Product Business, the patents, patent applications, provisional patent applications and similar instruments (including any and all substitutions, divisionals, continuations, continuations-in-part, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, divisionals, re-filings, continuations and continuations-in-part thereof, or the like) as well as any foreign equivalents thereof (including certificates of invention and any applications therefor), listed on Section 1.1(a)(iii)(C) of the Seller Disclosure Letter.

               “Product Registrations” means all applications (including the IND, BLA and NDA, as applicable), new drug applications, abbreviated new drug applications, new drug submissions, and any comparable applications and submissions, together with any and all supplements or modifications or amendments thereto, whether existing, pending, withdrawn or in draft form, together with all correspondence to or from any Governmental or Regulatory Authority with respect thereto, prepared and submitted to any Governmental or Regulatory Authority in the Territory with respect to Infergen.

               “Product Trade Dress” means, as owned, licensed or controlled by Seller, the trade dress, logos and designs exclusively related to the Product Business and all goodwill associated therewith, listed on Section 1.1(a)(iii)(D) of the Seller Disclosure Letter.

               “Product Trademarks” means, as owned, licensed or controlled by Seller and exclusively related to the Product Business, the trademarks, service marks, logos, slogans and trade names (whether or not registered), in the Territory, including all variations, derivations, combinations, registrations and applications for registration or renewals of the foregoing and all goodwill associated therewith, listed on Section 1.1(a)(iii)(E) of the Seller Disclosure Letter.

               “Roche/Genentech License Agreement” means that certain Agreement by and among Hoffman-La Roche, Inc., Genentech, Inc. and Seller made and effective January 1, 2007 regarding the licensing of certain US patents rights owned by Hoffman-La Roche, Inc. and Genentech, Inc.

***Confidential Treatment Requested

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               “Tax” means any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including a tax under Section 59A of the Code), capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, real property transfer, recording, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, customs duty, fee or other similar assessment or charge in the nature of a tax, imposed by any Governmental or Regulatory Authority (whether payable directly or by withholding and whether or not requiring the filing of a Return), including any interest or penalty thereon or addition thereto and any interest in respect of such additions or penalties, whether disputed or not and whether payable by reason of being a member of an affiliated, consolidated, combined or unitary group, any contract, assumption, transferee or successor liability, operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision of Law) or otherwise.

               “Tax Return” means any report, return (including any information return), claim for refund, election, estimated Tax filing or payment, request for extension, document, declaration or other information or filing required to be supplied to any Governmental or Regulatory Authority with respect to Taxes, including attachments thereto and amendments thereof.

               “Territory” means the United States, Canada and their respective territories and possessions.

               “Third Party” means any Person other than Buyer or Seller or an Affiliate of Buyer or Seller.

               “Trademarks” means all trademarks, service marks, logos, slogans and trade names (whether or not registered), in the Territory, including all variations, derivations, combinations, registrations and applications for registration or renewals of the foregoing and all goodwill associated therewith.

               “United States” means the United States of America and its territories and possessions.

               “Wholesalers” means McKesson, Cardinal and Amerisource Bergen.

               “Wholesaler Inventory Amount” shall mean, as of the date within two days of the Closing Date, the actual number of units of Product on hand at the Wholesalers.

               “Wholesaler Inventory Rebate” shall be calculated by multiplying (A) the number of units of Product representing the excess of the Wholesaler Inventory Amount over the Wholesaler Target Amount, by (B) with respect to a unit of Product, the net selling price, less the cost of goods (including royalties) and associated freight and distribution cost and all other accruals, prepared in accordance with a determination of net sales made in accordance with GAAP as customarily applied by Seller.

               “Wholesaler Target Amount” shall mean [...***...] units of Product.

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          (b) The following terms are defined elsewhere in this Agreement, as indicated below:

12-Month Anniversary Date	1.5(b)
12-Month Payment	1.5(b)
18-Month Anniversary Date	1.5(c)
18-Month Payment	1.5(c)
AAA	9.3(a)
Actions	3.8(b)
Agreement	Preamble
Allocation	1.7
Amgen Materials	1.3(c)
Assumed Contracts	1.1(a)(iv)
Assumed Liabilities	1.3
Basket	8.5(a)
Bill of Sale	2.2(a)
BI Materials	1.3(d)
Buyer	Preamble
Buyer Indemnitees	8.2(a)
Buyer’s Closing Certificate	6.3(c)
Cap	8.5(a)
Chargeback Claims	5.10(e)(i)
Closing	2.1
Closing Date	2.1
Closing Payment	1.5(a)
Commercial Rebate Tail Period	5.10(d)(i)(1)
Commercial Rebates	5.10(d)(i)
Competing Product	5.12
Dispute	9.3(a)
DOJ	5.4(a)
Effective Time	2.1
Electing Buyer	8.4
Enforceability Exceptions	3.2
Excluded Representations	8.1
Execution Date	Preamble
Financing	4.4
Financing Letter	4.4
FTC	5.4(a)
General Assignment	2.2(b)
Government Rebate Tail Period	5.10(c)(i)(1)
Government Rebates	5.10(c)(i)
Indemnification Claim Notice	8.3(a)
Indemnified Party	8.3(a)
Indemnifying Party	8.3(a)
Inventory	1.1(a)(vi)
Inventory Disposal Costs	1.1(a)(vi)
Losses	8.2(a)

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Material Contracts	3.10(a)
Non-Responsible Party	5.10(c)(ii)
Outside Date	7.1(b)
Patent Assignment	2.2(c)
Post-Closing Period	2.4(c)
Pre-Closing Period	2.4(b)
Product	Recitals
Product Financial Statements	3.15
Product Intellectual Property	1.1(a)(iii)
Product Records	1.1(a)(v)
Product Regulatory Approvals	1.1(a)(i)
Product Returns	5.10(b)(i)
Promotional Materials	1.1(a)(ii)
Purchase Price	1.5
Regulatory Consents	3.3(a)
Responsible Party	5.10(c)(ii)
Returned Product	5.10(b)(ii)
Rules	9.3(a)
SAE	5.14(b)
Seller	Preamble
Seller Marks	5.18
Seller Disclosure Letter	3.14
Seller Indemnitees	8.2(b)
Seller’s Closing Certificate	6.2(e)
Straddle Period	2.4(d)
Tax Claim	2.4(g)
Third Party Claim	8.3(a)
Trademark Assignment	2.2(d)
Transfer	1.1(a)
Transfer Taxes	2.4(a)
Transferred Assets	1.1(a)
Transferred Employee	5.13
Transition Related Payments	2.2(k)
Transition Services Agreement	Recitals

     9.2 Notices. Notices required or permitted under this Agreement shall be in writing and sent by overnight express mail (e.g., FedEx), or by facsimile confirmed by overnight express mail (e.g., FedEx), (failure of such confirmation shall not affect the validity of such notice by facsimile to the extent the receipt of such notice is confirmed by the act of the receiving party (e.g., a facsimile of the receiving party submitting its receipt of such notice)) and shall be deemed to have been properly served to the addressee upon receipt of such written communication, to the following addresses of the parties:

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          If to Seller:

Valeant Pharmaceuticals North America
One Enterprise
Aliso Viejo, California 92656
Attention: Office of the General Counsel
Fax: (949) 461-6641

          with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Ann Beth Stebbins, Esq.
Fax: (212) 735-2000

          If to Buyer:

Three Rivers Pharmaceuticals, LLC
301 Commerce Park Drive
Cranberry Township, PA 16066
Attention: Legal Department
Fax: (724) 778-6101

          with a copy to:

Nixon Peabody LLP
437 Madison Avenue
New York, NY 10022
Attn: Dominick P. DeChiara, Esq.
Facsimile: (866) 402-0836

     9.3 Dispute Resolution.

          (a) Subject to Section 9.3(b), any dispute, controversy or claim arising under, out of or in connection with this Agreement, or the breach, termination or validity thereof, including any subsequent amendments thereto (a “Dispute”), shall be referred to and finally settled by arbitration in accordance with the terms of this Section 9.3. If, pursuant to Section 9.3(b), the parties do not reach a solution to the Dispute within a period of twenty-five (25) days following receipt by a party of the first written notice of the Dispute by the other party, then upon written notice by any party to the other, the Dispute may be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in effect (the “Rules”) except as modified by the following:

               (i) the arbitration tribunal shall consist of three (3) arbitrators, one appointed by each of Buyer and Seller within thirty (30) days of receipt by a party of a copy of the demand for arbitration and a third arbitrator, who shall chair the arbitral tribunal shall appointed by the appointees of the parties within twenty (20) days of the

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appointment of the second arbitrator and any arbitrator not timely appointed shall be appointed by the AAA in accordance with the listing, striking and ranking procedure in the Rules. Any arbitrator appointed by the AAA shall be an attorney (or retired judge) admitted to practice for at least fifteen (15) years;

               (ii) the arbitration award shall be in writing shall include the findings of fact and conclusions of law on which it is based, shall apportion the costs of the arbitration in accordance with Section 9.3(d) herein and shall be final and binding on the parties;

               (iii) judgment upon any award may be entered in any court having jurisdiction, and any costs or fees (including attorneys’ fees and expenses) incident to enforcing the award shall be charged against the party resisting such enforcement;

               (iv) the arbitrators shall decide any dispute in accordance with New York Law, including, without limitation damages, specific performance, or other injunctive relief, except that the arbitrators shall not be empowered to award consequential, punitive, multiple or exemplary damages, and the parties hereby waive any right to such damages; and

               (v) notwithstanding anything in this Section 9.3(a) to the contrary, if the Dispute relates to Taxes then such Dispute shall be submitted to a Big Four accounting firm that is mutually agreeable to both Buyer and Seller or a mutually agreed upon tax lawyer who is a partner in an internationally renowned law firm and who is familiar with intellectual property transactions and who is independent with respect to each of Buyer and Seller.

               (vi) the arbitration will be held in New York, New York. The procedural law governing the arbitration shall be the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

          (b) In the event of a Dispute, the parties shall first use all commercially reasonable efforts to settle the Dispute. To this end, they shall consult and negotiate with each other, in good faith and understanding of their mutual interests, to reach a just and equitable solution satisfactory to all parties. If for any reason, the parties have not settled the Dispute by negotiation within forty-five (45) days of receipt by a party of written notice of a Dispute, on the demand of any party, the Dispute shall be referred to arbitration in accordance with Section 9.3(a) herein.

          (c) Nothing in this Agreement limits the right of either party, prior to the appointment of the arbitral tribunal, to seek to obtain in any court of competent jurisdiction any interim relief or provisional remedy, including injunctive relief. Seeking or obtaining any interim relief or provisional remedy in a court will not be deemed a breach or waiver of this agreement to arbitrate. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by

54.

such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

          (d) If any arbitration is brought to resolve a Dispute, the successful or prevailing party shall be entitled to recover the costs of the arbitration including the fees and expenses of the arbitrators and the AAA and the reasonable attorneys’ fees of the prevailing party, in addition to any other relief to which it or they may be entitled. The arbitrators shall consider, in determining the prevailing party which party obtains relief which most nearly reflects the remedy or relief which such party sought on each claim submitted to arbitration and shall apportion the costs accordingly.

     9.4 Interpretation. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section or Exhibit or Schedule of this Agreement unless otherwise indicated. All Exhibits and Schedules of this Agreement, including without limitation, the Seller Disclosure Letter, are incorporated herein by reference. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” Each of Buyer and Seller will be referred to herein individually as a “party” and collectively as “parties” (except where the context otherwise requires).

     9.5 Amendment. This Agreement may be modified only by a written instrument executed by the parties hereto specifically referencing this Agreement.

     9.6 Entire Agreement. The agreement of the parties, which is comprised of this Agreement, the Ancillary Agreements, the Confidentiality Agreement, the Non-Solicitation Agreement (subject to the provisions of Section 5.9 hereof), the schedules and the documents referred to herein, sets forth the entire agreement and understanding between the parties and supersedes any prior agreement or understanding, written or oral, relating to the subject matter of this Agreement.

     9.7 Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party; provided, however, that (i) the Buyer may assign any or all of its rights, obligations and interests hereunder without any such written consent as security for any obligations arising in connection with the financing of the transactions contemplated hereby; and provided, further, that either party shall have the right to assign its rights and obligations under this Agreement to any of its Affiliates or to any Third Party successor to all or substantially all of (i) its entire business, or (ii) its consumer healthcare or pharmaceuticals business. In no event shall any assignment hereof to any Affiliate or Third Party be deemed to relieve the assigning party of its liabilities or obligations to the other party under this Agreement, and the assigning party expressly acknowledges and agrees that it shall remain fully and unconditionally obligated and responsible for the full and compete performance of all of its obligations under the terms and conditions of this Agreement.

     9.8 Third Parties. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any Third Party, other than, with respect to Article VIII hereof, the Buyer Indemnitees and the Seller Indemnitees.

55.

     9.9 Waiver. The waiver by either party of a breach or a default of any provision of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either party to exercise or avail itself of any right, power or privilege that it has or may have hereunder operate as a waiver of any right, power or privilege by such party.

     9.10 Severability. If any part of this Agreement is declared invalid by any legally governing authority having jurisdiction over either party, then such declaration shall not affect the remainder of the Agreement and the parties shall revise the invalidated part in a manner that will render such provision valid without impairing the parties’ original intent.

     9.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflicts of laws principles that would mandate the application of the laws of another jurisdiction.

     9.12 Headings. The headings are placed herein merely as a matter of convenience and shall not affect the construction or interpretation of any of the provisions of this Agreement.

     9.13 Execution in Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the parties agrees to accept and be bound by facsimile or PDF signatures hereto.

     9.14 Relationship of the Parties. In making and performing this Agreement, the parties are acting, and intend to be treated, as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture, or employer and employee relationship between Buyer and Seller. Except as otherwise expressly provided herein, neither party may make any representation, warranty or commitment, whether express or implied, on behalf of or incur any charges or expenses for or in the name of the other party. No party shall be liable for the act of any other party unless such act is expressly authorized in writing by both parties hereto.

[signatures appear on the following page]

56.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

THREE RIVERS PHARMACEUTICALS, LLC
By:	/s/ Donald J. Kerrish
	Title:	President and CEO
VALEANT PHARMACEUTICALS NORTH AMERICA
By:	/s/Timothy C. Tyson
	Title:	President and CEO

57.

EX-10.28

EXHIBIT 10.28

***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.

January 11, 2008

Three Rivers Pharmaceuticals, LLC
301 Commerce Park Drive
Cranberry Township, PA 16066

Ladies and Gentlemen:

Reference is made to the Asset Purchase Agreement (the “Agreement”) dated as of December 19, 2007 by and between Valeant Pharmaceuticals North America (“Seller”) and Three Rivers Pharmaceuticals, LLC (“Buyer”). Capitalized terms used herein without definition shall have the meaning ascribed to them in the Agreement.

1. Allocation Schedule. Notwithstanding any provision of Section 1.7 of the Agreement, Buyer and Seller agree that Buyer shall prepare and deliver to Seller the Allocation as promptly as practicable but in no event later than the day that [...***...] after the Closing Date. The Allocation shall become final and binding on the parties, unless Seller notifies Buyer within fifteen (15) days after receipt of such Allocation of Seller’s disagreement with such Allocation. In the event Seller timely notifies Buyer of such disagreement, the parties shall resolve such disagreement in the manner described in Section 9.3 of the Agreement. All provisions of Section 1.7 of the Agreement shall remain in full force and effect as modified hereby.

2. Additional Assumed Contracts. The parties agree that [...***...], shall be deemed to be set forth in Section 1.1(a)(iv) of the Seller Disclosure Letter. The parties further agree that [...***...], shall be deemed to be set forth in Section 1.1(a)(iv) of the Seller Disclosure Letter.

3. Reference to Exhibits in the Agreement. The parties agree that each of the Bill of Sale, the General Assignment, the Patent Assignment, the Trademark Assignment and the non-foreign person certificate referenced in Section 2.2(e) of the Agreement to be delivered at Closing pursuant to Sections 2.2 and 2.3 of the Agreement shall be substantially in the forms attached to the Agreement as Exhibit B, Exhibit C, Exhibit D, Exhibit E and Exhibit F, respectively. The parties acknowledge that the foregoing exhibits are incorrectly referenced in Section 2.2 of the Agreement as Exhibit C, Exhibit D, Exhibit E, Exhibit F and Exhibit G, respectively.

4. Section 5.10(b)(i)(A) and Section 5.10(b)(i)(B) of the Seller Disclosure Letter. Attached as Annex 1 and Annex 2 hereto are Section 5.10(b)(i)(A) and Section 5.10(b)(i)(B) of the Seller Disclosure Letter updated as of the close of business on January 11, 2008. The

***Confidential Treatment Requested

1.

parties agree that Seller shall not be required to update Section 5.10(b)(i)(A) and Section 5.10(b)(i)(B) of the Seller Disclosure Letter for any event or change occurring after January 11, 2008.

5. Miscellaneous.

     (a) Seller and Buyer hereby acknowledge and agree that this letter agreement constitutes an amendment to the Agreement in accordance with Section 9.5 of the Agreement.

     (b) Each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Agreement shall mean and be a reference to the Agreement as amended by this letter agreement.

     (c) Each reference to the Agreement in the Ancillary Agreements and any other ancillary agreement entered into pursuant to or in connection with the Agreement shall mean and refer to the Agreement as amended by this letter agreement.

     (d) This letter agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflicts of laws principles that would mandate the application of the laws of another jurisdiction.

     (e) This letter may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the parties agrees to accept and be bound by facsimile or PDF signatures hereto.

     (f) Any dispute, controversy or claim arising under, out of or in connection with this letter agreement or the breach, termination or validity thereof shall be referred to and finally settled by arbitration in accordance with the terms of Section 9.3 of the Agreement.

[Remainder of page intentionally left blank.]

2.

     If the agreements and understandings contained in this letter agreement are acceptable to Buyer, please indicate such approval by signing this letter in the space indicated below and return a fully executed copy of this letter to Seller.

Sincerely, Valeant Pharmaceuticals North America
By:	/s/Timothy C. Tyson
	Name:	Timothy C. Tyson
	Title:	President and CEO

Accepted and Agreed Three Rivers Pharmaceuticals, LLC
By:	/s/Donald J. Kerrish
	Name:	Donald J. Kerrish
	Title:	President and CEO

3.

Annex 1

Section 5.10(b)(i)(A)

For [...***...] following the Closing, Seller shall be financially and legally responsible for all Liabilities associated with any Product Returns for any Infergen sold by Seller prior to the Closing Date.

***Confidential Treatment Requested

4.

Annex 2

Section 5.10(b)(i)(B)

Each of Buyer and Seller shall be financially and legally liable for Product Returns out of the Lots set forth below to the extent of Products sold out of these Lots by it.

LOT
NUMBER
[...***...]
[...***...]
[...***...]

***Confidential Treatment Requested

5.

EX-10.32

EXHIBIT 10.32

SEPARATION AND RELEASE AGREEMENT

Recitals

     A. Wesley P. Wheeler (“Wheeler”) was employed as President, North America, R& D, and Global Manufacturing of Valeant Pharmaceuticals North America (“VPNA”), a subsidiary of Valeant Pharmaceuticals International (collectively, the “Company”).

     B. Wheeler resigned from the Company effective December 7, 2007 (the “Termination Date”) and has agreed to release the Company as provided herein in exchange for the consideration described in the attached Exhibit A (the “Separation Payment”). Company has agreed that, in return for Wheeler signing this Separation and Release Agreement (“Agreement”), the Company will pay him the Separation Payment. Wheeler understands that, regardless of whether he signs this Agreement, the Company will pay his any accrued salary, vacation and other benefits to which he is entitled and that he will be able to exercise his post termination rights with respect to vested stock options and other forms of equity in accordance with the applicable plans and grant agreements. Wheeler also agrees that communication and interactions he has with the Company and external parties will be positive in nature and will in no way defame the Company or its management. In consideration for the Separation Payment he is receiving under this Agreement:

     1. Release. Wheeler hereby releases the Company and its parent, subsidiaries, predecessors, successors, and affiliates, and their respective directors, officers, employees, shareholders, and agents and all Company-sponsored benefit plans, plan fiduciaries, plan administrators and plan service providers (collectively, the “Releasees”) from any and all claims, demands, causes of action, liabilities, damages and obligations of every kind, whether known or unknown, arising at any time prior to and through the date Wheeler signs this Agreement. This general release includes, but is not limited to: all federal and state statutory and common law claims; claims related to his employment or termination of his employment, claims arising under theories of contract, tort, discrimination, harassment, retaliation, fraud, emotional distress theories, including all claims for compensation or benefits (including all bonus programs of any kind); claims for any form of equity; claims for breach of employee handbooks or policies, breach of statutory or ethical duties, breach of the covenant of good faith and fair dealing, promissory estoppel, fraud, breach of any implied covenants, defamation (including but not limited to slander and libel), invasion of privacy, intentional infliction of emotional distress, negligence (including but not limited to negligent retention, negligent supervision, gross negligence, and the negligent infliction of emotional distress) as well as any other tort claim; and releasable claims related to leaves of absences. In releasing claims unknown to him at present, Wheeler acknowledges that Wheeler has

1.

understood and waived all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:

“A general release does not extend to claims which the creditor does not know or suspect to exist In his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

     Wheeler acknowledges that he is knowingly and voluntarily waiving and releasing any rights that he may have under the Age Discrimination in Employment Act of 1967, as amended (“ADEA”), and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which he was already entitled, such as the proceeds of his 401(k) account or the right to exercise, according to the provisions of the applicable stock option grants and agreements, any stock options or other equity vested as of the termination date.

     The Company specifically releases, waives, and forever discharges Wheeler, his successors in interest, past, present and future assigns, from any and all past claims, demands, actions, liabilities and causes of actions, of every kind and character, whether asserted or unasserted, whether known or unknown, suspected or unsuspected, in law or in equity, for or by reason of any matter, cause or thing whatsoever, arising out of Wheeler’s personal actions during his tenure as an employee and officer of the Company so long as such personal actions were not of an illegal nature. As such, except for the enforcement of this Agreement or any rights preserved under this Agreement, the Company hereby covenants that they will not, based on any of Wheeler’s personal actions during his tenure with the Company, sue or bring any claim or action against Wheeler. This Covenant Not to Sue shall be a complete defense to any such claim or suit by the Company.

     In addition, as it relates to actions concerning Wheeler’s actions as an officer of the Company, the Company acknowledges that Wheeler is covered by the Company’s Director and Officer Liability insurance policy in place during his tenure.

     2. Exceptions. Notwithstanding anything herein to the contrary, Wheeler is not releasing: (a) any claims that relate to his right to enforce this Agreement, (b) his rights of indemnification and directors and officers liability insurance coverage (or replacements therefore) to which he was entitled immediately prior to the date of this Agreement with regard to his service on behalf of the Company and its affiliates; (c) his rights under any tax-qualified pension or claims for accrued vested benefits under any other employee benefit plan maintained by the Company; or (d) his rights as a stockholder. He further understands that nothing in this Agreement shall be construed to prohibit him from filing a charge or complaint with the Equal Employment Opportunity Commission or with any

2.

state agency responsible to enforce laws prohibiting discrimination in employment, including a challenge to the validity of this Agreement under the ADEA or the Older Workers Benefit Protection Act, and nothing in this Agreement prevents him from participating in any investigation or proceeding conducted by the Equal Employment Opportunity Commission or any such state agency. Wheeler further understands and agrees that if he, or someone acting on his behalf, files, or causes to be filed, any such claim, charge, complaint, or action against the Releasees, he expressly waives any right to recover any damages or other relief, whatsoever, from the Releasees, including costs and attorneys’ fees.

     Wheeler further acknowledges that he has been advised by this writing that: (a) his waiver and release does not apply to any rights or claims that may arise after the execution date of this Agreement; (b) he has the right to consult with an attorney prior to executing this Agreement; (c) he has twenty-one (21) days from the date this agreement is submitted to him to consider this Agreement (although he may choose voluntarily to execute this Agreement earlier);

(d) he has seven (7) days following the execution of this Agreement to revoke the Agreement by providing written notice to the Timothy C. Tyson, President and Chief Executive Officer; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by him (“the Effective Date”).

     3. No Other Payments. Wheeler acknowledges and agrees that, other than what is provided for herein, he is not eligible or entitled to receive, pursuant to any policy, prior contracts, plans, agreements or otherwise, any other payment, benefit or consideration in connection with his employment or the termination of his employment with the Releasees including, without limitation, any payments or benefits under any severance policy, plan or contract.

     4. Defense of Litigation. Wheeler agrees to cooperate with Valeant in connection with the defense of all outstanding litigation with respect to which Wheeler has relevant information. Such cooperation shall include, but is not limited to: (a) voluntarily appearing at the request of Valeant for depositions at the times and places reasonably agreed upon by Valeant and Wheeler; (b) appearing at trial or any hearing for the purpose of testifying or otherwise providing evidence in the cases. To the extent that Wheeler suffers any loss in income (including use of vacation pay from a subsequent employer), Valeant will reimburse him for the amount of the loss, as well as any out of pocket expenses for travel etc.

     5. Proprietary Information. Wheeler will immediately return all Company property and documents and any other embodiments of the Company’s proprietary or confidential information (and all reproductions thereof, in whole or in part) in his possession or control. Wheeler will not use or disclose the Company’s confidential or proprietary information. Wheeler will comply with any

3.

other obligations regarding protection of the Company’s proprietary and confidential information, assignment and disclosure of inventions, and return of property which Wheeler may have undertaken previously in agreements Wheeler has signed with the Company.

     6. Enforcement of Proprietary Rights. Wheeler will assist the Company in every proper way to obtain, and from time to time enforce, United States and foreign rights in trade secrets, patents, copyrights, and other intellectual property rights (“Proprietary Rights”) relating to inventions, ideas, processes, formulas, source and object codes, data, programs and other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques in any and all countries. To that end, Wheeler will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, Wheeler will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. The Company shall compensate Wheeler at a reasonable rate after his termination for the time actually spent by him at the Company’s request on such assistance.

     In the event the Company is unable for any reason, after reasonable effort, to secure his signature on any document needed in connection with the actions specified in the preceding paragraph, Wheeler hereby irrevocably designates and appoint the Company and its duly authorized officers and agents as his agent and attorney in fact, which appointment is coupled with an interest, to act for and in his behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by him. Provided, however, that Wheeler’s designation of the Company as his agent and attorney in fact, as granted in this paragraph, is for a period of 6 months from the execution of this Agreement. Wheeler agrees to extend this term if reasonably necessary for another 6 month term. Reasonable efforts by the Company to contact Wheeler includes, but are not limited to, contact at his last known home and business address and phone number and through his designated agent, Alexander E. Kahn of Moore Colson at 678-385-6050. Wheeler agrees to notify the Company of changes to his contact information as soon as practicable during the term of this Agreement.

     7. Governing Law and Jurisdiction. This Agreement will be governed by and construed and enforced in accordance with the laws of the State of California without giving effect to the conflict of law principles thereof. The Company and Wheeler agree to resolve any claims they may have in regards to this Agreement, and the execution and enforcement thereof, in, and irrevocably consent to the exclusive jurisdiction of, the state and federal courts sitting in Orange County, California.

4.

     8. Nonadmission of Liability. This Agreement is not an admission of wrongdoing by any released party. Wheeler agrees that he has not suffered any discrimination on account of his age, sex, race, national origin, marital status, sexual orientation, or any other protected status, and none of these ever has been an adverse factor used against him by any released party. Wheeler has not suffered any job related wrongs or injuries for which Wheeler might still be entitled to compensation or relief, such as an injury for which Wheeler might receive a workers’ compensation award in the future.

     9. Severability. Should any of the provision in this Agreement be declared or be determined to be illegal or invalid, all remaining parts, terms or provisions shall be valid, and the illegal or invalid part, term, or provision shall be deemed not to be a part of this Agreement.

     TAKE THIS RELEASE HOME, READ IT, AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT: IT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS. IF YOU WISH, YOU SHOULD TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD SET FORTH ABOVE AND CONSULT YOUR ATTORNEY.

     This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and Wheeler with regard to the subject matter hereof. Wheeler is not relying on any promise or representation, written or oral, which is not expressly stated herein. This Agreement may only be modified by a written agreement signed by both Wheeler and a duly authorized officer of the Company.

Understood and agreed:

/s/ Wesley P. Wheeler   Wesley P. Wheeler 12/13/07
  Date

Valeant Pharmaceuticals International
By:	/s/ Timothy C. Tyson

Date: 12/13/07 

5.

EXHIBIT A

Separation Payment

     If Wheeler signs and returns the attached Separation and Release Agreement as provided therein, the Company will make a lump sum payment to Wheeler, within ten (10) days after the Effective Date, of three hundred thousand dollars ($300,000), subject to standard payroll deductions and withholdings.

6.

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

          Valeant Pharmaceuticals International is incorporated in the State of Delaware. The following table shows the Company’s subsidiaries as of December 31, 2007, the percentage of their voting securities (including directors’ qualifying shares) then owned, directly or indirectly by the Company, and the jurisdiction under which each subsidiary is incorporated. These subsidiaries are included in the Company’s consolidated financial statements.

		PERCENTAGE
		OF VOTING
	JURISDICTION	SECURITIES OWNED
	OF	BY COMPANY
	INCORPORATION	OR SUBSIDIARY
Valeant Argentina S.A.	Argentina		100
Laboratorios Valeant Argentina S.A.	Argentina		100
Valeant Pharmaceuticals Australasia Pty. Ltd.	Australia		100
Valeant Farmaceutica do Brasil Ltda.	Brazil		100
Valeant Canada Ltd.	Canada		100
Valeant Canada Holdings Ltd.	Canada		100
Valeant Pharma Hungary Commercial LLC	Hungary		100
Valeant Farmaceutica, S.A. de C.V.	Mexico		100
Laboratorios Grossman, S.A.	Mexico		100
Logistica Valeant S.A. de C.V.	Mexico		100
Valeant Biomedicals Dutch Holdings B.V.	Netherlands		100
Valeant Dutch Holdings B.V.	Netherlands		100
ICN Polfa Rzeszow S.A.	Poland		99
Valeant Global Pte. Ltd.	Singapore		100
Valeant Pharmaceuticals Singapore Pte. Ltd.	Singapore		100
Valeant Singapore Pte. Ltd.	Singapore		100
Valeant Pharmaceuticals Switzerland GmbH	Switzerland		100
Valeant Biomedicals, Inc.	Delaware (USA)		100
Valeant Pharmaceuticals North America	Delaware (USA)		100

* In accordance with the instructions of Item 601 of Regulation S-K, certain subsidiaries are omitted from the foregoing table.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, J. Michael Pearson, Chief Executive Officer, certify that:

     1. I have reviewed this annual report on Form 10-K of Valeant Pharmaceuticals International;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in exchange act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  J. Michael Pearson  

J. Michael Pearson 

Chairman and Chief Executive Officer 

Date: March 17, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter J. Blott, Chief Financial Officer, certify that:

     1. I have reviewed this annual report on Form 10-K of Valeant Pharmaceuticals International;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in exchange act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Peter J. Blott  

Peter J. Blott 

Executive Vice President and Chief Financial Officer 

Date: March 17, 2008

EX-32

Exhibit 32

CERTIFICATION

     Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), J. Michael Pearson, Chief Executive Officer of Valeant Pharmaceuticals International (the “Company”), and Peter J. Blott, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

     1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2007, to which this Certification is attached as Exhibit 32.1 (the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

     2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 17th day of March, 2008.

/s/   J. Michael Pearson	/s/  Peter J. Blott
J. Michael Pearson	Peter J. Blott
Chairman and Chief Executive Officer	Executive Vice President and Chief Financial Officer

     This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Valeant Pharmaceuticals International under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.