10-K 1 valeant2015form10-k.htm 10-K 10-K




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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 001-14956
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
BRITISH COLUMBIA, CANADA
State or other jurisdiction of
incorporation or organization
98-0448205
(I.R.S. Employer Identification No.)
2150 St. Elzéar Blvd. West
Laval, Quebec
Canada, H7L 4A8
(Address of principal executive offices)
Registrant's telephone number, including area code (514) 744-6792
Securities registered pursuant to Section 12(b) of the Act:
Title of each class 
 
Name of each exchange on which registered 
Common Shares, No Par Value
 
New York Stock Exchange, Toronto Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý
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 ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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 ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the common shares held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $75,445,451,000 based on the last reported sale price on the New York Stock Exchange on June 30, 2015.
The number of outstanding shares of the registrant’s common stock as of April 22, 2016 was 343,019,770.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 2016 Annual Meeting of Shareholders. Such proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2015.





EXPLANATORY NOTE
This Annual Report on Form 10-K for the year ended December 31, 2015 includes consolidated financial statements for the years ended December 31, 2013, 2014 and 2015. The audited consolidated financial statements for the year ended December 31, 2014 are restated. Valeant Pharmaceuticals International, Inc. and its subsidiaries (the “Company”) has also restated certain unaudited quarterly results related to the three months ended December 31, 2014, the three months ended March 31, 2015, the six months ended June 30, 2015, and the nine months ended September 30, 2015.
Restatement Background
On October 26, 2015, in light of allegations regarding the Company’s relationship with the Philidor Rx Services, LLC (“Philidor”) pharmacy network, the Company’s Board of Directors (the “Board”) established an ad hoc committee of independent directors of the Board (the “Ad Hoc Committee”) to review these allegations and related matters (the “AHC Review”). The scope of the review conducted by the Ad Hoc Committee was subsequently broadened to encompass other areas of potential concern, unrelated to Philidor, raised during the course of the review. The Ad Hoc Committee was chaired by Robert Ingram, the Company’s current independent chairman of the board (and formerly the Company’s lead independent director). Other members included Norma Provencio, chairperson of the Audit and Risk Committee (the “ARC”), Colleen Goggins, and Mason Morfit. The Ad Hoc Committee engaged the law firm of Kirkland & Ellis LLP to assist and advise in carrying out the AHC Review. On February 22, 2016, the Company announced that, based on the work of the Ad Hoc Committee, as well as additional work and analysis performed by the Company, the Company had preliminarily identified certain revenue on sales transactions to Philidor during the second half of 2014, prior to the Company entering into a purchase option to acquire Philidor, that should have been recognized when product was dispensed to patients rather than on delivery to Philidor.
On March 21, 2016, management of the Company, the ARC and the Board concluded that the Company’s audited financial statements for the year ended, and unaudited financial information for the quarter ended, December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited financial statements for the quarter ended March 31, 2015 included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 should no longer be relied upon due to the misstatements and other qualitative factors described below. In addition, due to the fact that the first quarter 2015 results are included within the financial statements for the six-month period ended June 30, 2015 included in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and the financial statements for the nine-month period ended September 30, 2015 included in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, management, the ARC and the Board also concluded that the financial statements for such six-month and nine-month periods reflected in those Quarterly Reports should no longer be relied upon. This determination was based on the AHC Review and additional work and analysis performed by the Company. Based on this work, the Company determined that the earnings impact of certain revenue transactions should have been recognized at a later date than when originally recognized.
As previously disclosed, on December 15, 2014, the Company entered into a purchase option agreement with Philidor and its members in which the Company received an exclusive option to acquire 100% of the equity interest in Philidor, and as of which time Philidor was consolidated with the Company for accounting purposes as a variable interest entity for which the Company was the primary beneficiary. Prior to consolidation, revenue on sales to Philidor was recognized by the Company on a sell-in basis (i.e., recorded when the Company delivered product to Philidor). In connection with the work of the Ad Hoc Committee, the Company determined that certain sales transactions for deliveries to Philidor in the second half of 2014 leading up to the execution of the purchase option agreement were not executed in the normal course of business under applicable accounting standards and included actions taken by the Company (including fulfillment of unusually large orders with extended payment terms and increased pricing, an emphasis on delivering product prior to the execution of the purchase option agreement and seeking and filling a substitute order of equivalent value for an unavailable product) in contemplation of the purchase option agreement. As a result of these actions, revenue for certain transactions completed prior to entry into the purchase option agreement should have been recognized on a sell-through basis (i.e., record revenue when Philidor dispensed the products to patients) rather than incorrectly recognized on the sell-in basis utilized by the Company. Additionally, related to these and certain earlier transactions, the Company has now concluded that collectability was not reasonably assured at the time the revenue was originally recognized, and, thus, these transactions should have been recognized at a later date (when collectability was reasonably assured which the Company determined coincides with when the inventory is sold through to the end customer) instead of on a sell-in basis. Following the consolidation of Philidor on the date of entry into the purchase option agreement, the Company began recognizing revenue as Philidor dispensed product to patients.
On April 5, 2016, the Company announced that the Ad Hoc Committee had determined that its review was complete, and that the Ad Hoc Committee had not identified any additional items that would require restatement beyond those required by matters previously disclosed. In addition, the Company announced that, given the completion of the AHC Review, the Board had determined to dissolve the Ad Hoc Committee and that the 12 independent directors on the Board, including the members of the ARC, would assume oversight responsibility for remaining work, including work associated with the completion of the Company's current and restated financial statements and disclosures, as well as its assessment of related internal controls and remediation matters.




Impact of Restatement
The Company has identified misstatements that reduce previously reported fiscal year 2014 revenue by approximately $58 million, net income attributable to Valeant Pharmaceuticals International, Inc. by approximately $33 million, and basic and diluted earnings per share by $0.09 (as compared to the previously reported amounts for fiscal year 2014 of $8,264 million for revenue, $914 million for net income attributable to Valeant Pharmaceuticals International, Inc. and $2.72 and $2.67 for basic and diluted earnings per share, respectively). A substantial part of the earnings impact of these misstatements reversed in the first quarter of 2015. The Company has also identified misstatements in the first quarter of 2015, consisting primarily of the reversing effect on earnings of the 2014 misstatements, which reduce revenue by approximately $21 million (due to timing of recognition of and impact of consolidation for managed care rebates), increase net income attributable to Valeant Pharmaceuticals International, Inc. by approximately $24 million and increase basic and diluted earnings per share by $0.07 (as compared to the previously reported first quarter 2015 amounts of $2,191 million for revenue, $74 million for net income attributable to Valeant Pharmaceuticals International, Inc. and $0.22 and $0.21 for basic and diluted earnings per share, respectively).
Internal Control Over Financial Reporting and Disclosure Controls and Procedures
Based on the results of the AHC Review, the Company's review of its financial records, and other work completed by management, the Company and the ARC have concluded that material weaknesses in the Company's internal control over financial reporting existed that contributed to the material misstatements in the consolidated financial statements described above. These material weaknesses relate to the tone at the top of the organization and the accounting and disclosure for non-standard revenue transactions particularly at or near quarter ends. The improper conduct of the Company’s former Chief Financial Officer and former Corporate Controller, which resulted in the provision of incorrect information to the ARC and the Company’s independent registered public accounting firm, contributed to the misstatement of financial results. In addition, as part of this assessment of internal control over financial reporting, the Company has determined that the tone at the top of the organization, with its performance-based environment, in which challenging targets were set and achieving those targets was a key performance expectation, may have been a contributing factor resulting in the Company’s improper revenue recognition and the conduct described above.
In connection with the Ad Hoc Committee’s work, certain remediation actions have been recommended, and the Company is in the process of implementing them. For further information regarding management’s assessment of internal control over financial reporting and disclosure controls and procedures, as well as the related remediation actions, refer to Item 9A "Controls and Procedures" of this Form 10-K.
More Information
Note 2 titled “RESTATEMENT” to the Company's consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement matters on the Company's consolidated financial statements for 2014. Note 25 titled "SUMMARY QUARTERLY INFORMATION (UNAUDITED)" to the Company's consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement matters on the Company's consolidated financial information for the three months ended December 31, 2014 and on the Company's consolidated financial statements for the three months ended March 31, 2015, the six months ended June 30, 2015, and the nine months ended September 30, 2015. This footnote also discloses the impact of related revisions to the Company's consolidated financial statements for the three months and nine months ended September 30, 2014.




TABLE OF CONTENTS

GENERAL INFORMATION

 
 
 
 
Page
PART I
Item 1.
 
Business
 
1
Item 1A.
 
Risk Factors
 
11
Item 1B.
 
Unresolved Staff Comments
 
32
Item 2.
 
Properties
 
33
Item 3.
 
Legal Proceedings
 
33
Item 4.
 
Mine Safety Disclosures
 
34
PART II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
35
Item 6.
 
Selected Financial Data
 
38
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
40
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
78
Item 8.
 
Financial Statements and Supplementary Data
 
78
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
78
Item 9A.
 
Controls and Procedures
 
78
Item 9B.
 
Other Information
 
81
PART III
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
82
Item 11.
 
Executive Compensation
 
82
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
82
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
82
Item 14.
 
Principal Accounting Fees and Services
 
82
PART IV
Item 15.
 
Exhibits and Financial Statement Schedules
 
83
SIGNATURES
 
92

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Basis of Presentation
General
Except where the context otherwise requires, all references in this Annual Report on Form 10-K (“Form 10-K”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Valeant Pharmaceuticals International, Inc. and its subsidiaries, taken together. In this Form 10-K, references to “$” are to United States (“U.S.”) dollars, references to “€” are to Euros, and references to RUR are to Russian rubles. Unless otherwise indicated, the statistical and financial data contained in this Form 10-K are presented as of December 31, 2015.
Trademarks
The following words are some of the trademarks in our Company’s trademark portfolio and are the subject of either registration, or application for registration, in one or more of Canada, the United States of America (the “U.S.”) or certain other jurisdictions: ACANYA®, ADDYI®, AERGEL®, AFEXA®, AKREOS®, ALREX®, AMYTAL®, ANTI-ANGIN®, ANTIGRIPPIN®, APRISO®, ARESTIN®, ARTELAC®, ATRALIN®, B&L®, B+L®, BAUSCH & LOMB®, BAUSCH + LOMB®, BAUSCH + LOMB ULTRA®, BEDOYECTA®, BEPREVE®, BESIVANCE®, BIOTRUE®, BIOVAIL®, BOSTON®, CARAC®, CARDIZEM®, CERAVE®, CLEAR + BRILLIANT®, CLINDAGEL®, COLD-FX®, COMFORTMOIST®, CONDITION & ENHANCE®, CRYSTALENS®, CUPRIMINE®, ELASTIDERM®, ENVISTA®, FRAXEL®, GLUMETZA®, GRIFULVIN®, IPRIVASK®, ISTALOL®, JUBLIA®, KINERASE®, LACRISERT®, LIPOSONIX®, LOTEMAX®, LUMINESSE™, LUZU®, MACUGEN®, MAXAIR®, MEDICIS®, MOISTURESEAL®, NU-DERM®, OBAGI®, OBAGI CLENZIDERM®, OBAGI-C®, OBAGI NU-DERM®, OCUVITE®, ONEXTON®, PRESERVISION®, PROLENSA®, PROVENGE®, PUREVISION®, RELISTOR®, RENU®, RENU MULTIPLUS®, RETIN-A®, RETIN-A MICRO®, SECONAL®, SECONAL SODIUM®, SOFLENS®, SOLODYN®, SOLTA MEDICAL®, STELLARIS®, STORZ®, SYNERGETICS®, SYPRINE®, TARGRETIN®, TASMAR®, THERMAGE®, THERMAGE CPT®, TIAZAC®, TRULIGN®, UCERIS®, VALEANT®, VALEANT V & DESIGN®, VALEANT PHARMACEUTICALS & DESIGN®, VANOS®, VICTUS®, VIRAZOLE®, VITESSE™, XENAZINE®, ZEGERID®, ZELAPAR®, ZIANA®, ZYCLARA® and ZYLET®.
WELLBUTRIN®, WELLBUTRIN XL® and ZOVIRAX® are trademarks of The GlaxoSmithKline Group of Companies and are used by us under license. MVE® is a registered trademark of DFB Technology Ltd. and is used by us under license. ELIDEL® and XERESE® are registered trademarks of Meda Pharma SARL and are used by us under license. VISUDYNE® is a registered trademark of Novartis Pharma AG and is used by us under license. EMERADE® is a registered trademark of Medeca Pharma AB and is used by us under license. DEFLUX® and SOLESTA® are registered trademarks of Galderma S.A. and are used by us under license. ISUPREL® and NITROPRESS® are registered trademarks of Hospira, Inc. and are used by us under license. XIFAXAN® is a registered trademark of Alfa Wasserman S.P.A. and is used by us under license. ZIRGAN® is a registered trademark of Laboratoires Théa Corporation and is used by us under license.  PEPCID® is a registered trademark of Johnson & Johnson and is used by us under license. MOVIPREP® is a registered trademark of Velinor AG and is used by us under license. LOCOID® is a registered trademark of Astellas Pharma Europe B.V. and is used by us under license.
In addition to the trademarks noted above, we have filed trademark applications and/or obtained trademark registrations for many of our other trademarks in the U.S., Canada and in other jurisdictions and have implemented, on an ongoing basis, a trademark protection program for new trademarks.
Forward-Looking Statements
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995:
To the extent any statements made in this Form 10-K contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian securities legislation (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects, product pipeline, prospective products or product approvals, product development and distribution plans, future performance or results of current and anticipated products; the expected benefits of our acquisitions and other transactions, such as cost savings, operating synergies and growth potential of the Company; the impact of material weaknesses in our internal control over financial reporting; the impact of delayed securities filings under the agreements governing our outstanding indebtedness; our liquidity and our ability to cover our debt maturities as they become due; the impact of our distribution, fulfillment and other third party arrangements; changes in management; our ability to reduce wholesaler inventory levels; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory

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proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity and income taxes.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “tentative”, “positioning”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “ongoing”, “increase”, or “upside” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have indicated above certain of these statements set out herein, all of the statements in this Form 10-K that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including, but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:
the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to our distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts, the U.S. Attorney's Office for the Southern District of New York and the State of North Carolina Department of Justice, the pending investigation by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, pending investigations by the U.S. Senate Special Committee on Aging and the U.S. House Committee on Oversight and Government Reform, the request for documents and information received by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), the document subpoena from the New Jersey State Bureau of Securities and a number of pending purported class action securities litigations in the U.S. and Canada and other claims, investigations or proceedings that may be initiated or that may be asserted;
our ability to manage the transition to the individual identified to succeed our current chief executive officer, the success of such individual in assuming the roles of chairman and chief executive officer and the ability of such individual to implement and achieve the strategies and goals of the Company as they develop;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm that may result from the completed review by the Ad Hoc Committee;
the effect of the misstatements identified in our previously issued financial statements for the year ended December 31, 2014, the financial information for the quarter ended December 31, 2014 (included in our Annual Report for the year ended December 31, 2014) and the financial statements for the quarter ended March 31, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015), as well as the financial statements for the six-month period ended June 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) and the nine-month period ended September 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015), due to the fact that the financial results for the quarter ended March 31, 2015 are included within the financial statements for these periods; the resultant restatement of the affected financial statements; the material weaknesses in our internal control over financial reporting identified by the Company; and any claims, investigations or proceedings (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity or reputational harm that may arise as a result;
the effectiveness of the remediation measures and actions to be taken to remediate the material weaknesses in our internal control over financial reporting identified by the Company, our deficient control environment and the contributing factors leading to the misstatement of our results and the impact such measures may have on the Company and our businesses;
any default under the terms of our senior notes indentures or Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any subsequent financial statements or other filings (including the expected delay in the filing of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 (the “First Quarter 2016 Form 10-Q”) and any default under the terms of our senior notes indentures or Credit Agreement as a result of such delays;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm

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on our Company, products and business that may result from the recent public scrutiny of our distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor, including any claims, proceedings, investigations and liabilities we may face as a result of any alleged wrongdoing by Philidor;
the current scrutiny of our business practices including with respect to pricing (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York, the U.S. Senate Special Committee on Aging, the U.S. House Committee on Oversight and Government Reform and the State of North Carolina Department of Justice) and any pricing controls or price reductions that may be sought or imposed on our products as a result thereof;
our substantial debt (and potential future indebtedness) and current and future debt service obligations and their impact on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including the restrictions imposed by the April 11, 2016 amendment (the “April 2016 amendment”) to our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold (subject to certain exceptions) and from incurring debt to finance such acquisitions, until we file our First Quarter 2016 Form 10-Q and achieve a specified leverage ratio;
our ability to service and repay our existing or any future debt, including our ability to reduce our outstanding debt levels further during 2016 in accordance with our stated intention;
any further downgrade by rating agencies in our credit ratings (such as the recent downgrades by Moody’s Investors Service and Standard & Poor’s Ratings Services), which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
our ability to raise additional funds, as needed, in light of our current and projected levels of operations, general economic conditions (including capital market conditions) and any restrictions or limitations imposed by the financial and other covenants of our debt agreements with respect to incurring additional debt;
the potential divestiture of certain of our assets or businesses and our ability to successfully complete any future divestitures on commercially reasonable terms and on a timely basis, or at all;
the impact of any such future divestitures on our Company, including the reduction in the size or scope of our business or market share, any loss on sale or any adverse tax consequences suffered as a result of such divestitures;
our current shift in focus to minimal business development activity through acquisitions in 2016 and possibly beyond as we focus on reducing our outstanding debt levels and as a result of the restrictions imposed by the April 2016 amendment to our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold (subject to certain exceptions) and from incurring debt to finance such acquisitions, until we file our First Quarter 2016 Form 10-Q and achieve a specified leverage ratio;
our ability to retain, motivate and recruit executives and other key employees, including a new corporate controller, and the termination or resignation of executives or key employees, such as the recently announced departure of our current chief executive officer;
our ability to implement effective succession planning for our executives and key employees;
our proposed price reductions on certain of our products, including in connection with our arrangements with Walgreen Co. ("Walgreens") (as further described herein), and any future pricing freezes, reductions, increases or changes we may elect to make, as well as any proposed or future legislative price controls or price regulation, including mandated price reductions, that may impact our products;
the challenges and difficulties associated with managing a large complex business, which has grown rapidly over the last few years;
our ability to compete against companies that are larger and have greater financial, technical and human resources than we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products introduced by our competitors;
the success of our recent and future fulfillment and other arrangements with Walgreens, including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, pharmacy benefit managers

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("PBMs"), third party payors and governmental agencies), the continued compliance of such arrangements with applicable laws and the ability of the anticipated increased volume across all distribution channels resulting from such arrangements to offset the impact of lower average selling prices associated with these arrangements;
the extent to which our products are reimbursed by government authorities, PBMs and other third party payors; the impact our distribution, pricing and other practices (including as relates to our former relationship with Philidor, any wrongdoing by Philidor and our current relationship with Walgreens) may have on the decisions of such government authorities, PBMs and other third party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact on the price and sales of our products in connection therewith;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries, including the impact on such matters of the recent proposals published by the Organization for Economic Co-operation and Development ("OECD") respecting base erosion and profit shifting ("BEPS");
the actions of our third party partners or service providers of research, development, manufacturing, marketing, distribution or other services, including their compliance with applicable laws and contracts, which actions may be beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the challenges we face when entering new geographic markets (including the challenges created by new and different regulatory regimes in such countries), such as with our recent acquisition of Amoun Pharmaceutical Company S.A.E. in Egypt;
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in the countries in which we do business (such as the recent instability in Brazil, China, Russia, Ukraine, Argentina and the Middle East);
our ability to reduce wholesaler inventory levels in Russia, Poland and certain other countries, in-line with our targeted levels for such markets;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the introduction of products that compete against our products that do not have patent or data exclusivity rights;
once the additional limitations in our Credit Agreement restricting our ability to make acquisitions are no longer applicable and to the extent we elect to resume business development activities through acquisitions, our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis;
factors relating to the acquisition and integration of the companies, businesses and products that have been acquired by the Company (and that may in the future be acquired by the Company, once the additional limitations in our Credit Agreement restricting our ability to make acquisitions are no longer applicable and to the extent we elect to resume business development activities through acquisitions), such as the time and resources required to integrate such companies, businesses and products, the difficulties associated with such integrations (including potential disruptions in sales activities and potential challenges with information technology systems integrations), the difficulties and challenges associated with entering into new business areas and new geographic markets, the difficulties, challenges and costs associated with managing and integrating new facilities, equipment and other assets, and the achievement of the anticipated benefits from such integrations, as well as risks associated with the acquired companies, businesses and products;
factors relating to our ability to achieve all of the estimated synergies from such acquisitions as a result of cost-rationalization and integration initiatives. These factors may include greater than expected operating costs, the difficulty in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic decisions, some of which have not yet been made;

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the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations, subpoenas, tax and other regulatory audits, reviews and regulatory proceedings against us or relating to us and settlements thereof;
the uncertainties associated with the acquisition and launch of new products (such as our recently launched Addyi® product), including, but not limited to, our ability to provide the time, resources, expertise and costs required for the commercial launch of new products, the acceptance and demand for new pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment charges;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic audits by the U.S. Food and Drug Administration (the "FDA"), and the results thereof;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements, including the impact of our recent arrangements with Walgreens;
our ability to secure and maintain third party research, development, manufacturing, marketing or distribution arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential lawsuits, product liability claims and damages and/or withdrawals of products from the market;
the availability of and our ability to obtain and maintain adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely impact the timely commercialization of our pipeline products, as well as factors impacting the commercial success of our currently marketed products (such as our recently launched Addyi® product), which could lead to material impairment charges;
the results of management reviews of our research and development portfolio, conducted periodically and in connection with certain acquisitions, the decisions from which could result in terminations of specific projects which, in turn, could lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act), worldwide environmental laws and regulation and privacy and security regulations;
the impacts of the Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;

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the impact of the upcoming United States elections, including any healthcare reforms arising therefrom, including with respect to pricing controls;
factors relating to our acquisition of Salix, including the impact of substantial additional debt on our financial condition, cash flows and results of operations; our ability to effectively and efficiently integrate the operations of the Company and Salix; our ability to achieve the estimated synergies from this transaction; once integrated, the effects of such business combination on our future financial condition, operating results, strategy and plans; and, our ability to achieve the anticipated benefits of such acquisition, including the anticipated revenue growth resulting from such acquisition (such as the anticipated revenue of the Xifaxan® product, including the recently-approved IBS-D indication);
potential ramifications, including financial penalties, relating to Salix's restatement of its historical financial results;
illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
other risks detailed from time to time in our filings with the SEC and the Canadian Securities Administrators (the “CSA”), as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found elsewhere in this Form 10-K, under Item 1A. “Risk Factors” and in the Company’s other filings with the SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect actual outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all potential risks and uncertainties.

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PART I
Item 1.    Business
Biovail Corporation (“Biovail”) was formed under the Business Corporations Act (Ontario) on February 18, 2000, as a result of the amalgamation of TXM Corporation and Biovail Corporation International. Biovail was continued under the Canada Business Corporations Act (the “CBCA”) effective June 29, 2005. In connection with the acquisition of Valeant Pharmaceuticals International (“Valeant”) in September 2010, Biovail was renamed “Valeant Pharmaceuticals International, Inc.”
Effective August 9, 2013, we continued from the federal jurisdiction of Canada to the Province of British Columbia, meaning that we became a company registered under the laws of the Province of British Columbia as if we had been incorporated under the laws of the Province of British Columbia. As a result of this continuance, our legal domicile became the Province of British Columbia, the Canada Business Corporations Act ceased to apply to us and we became subject to the British Columbia Business Corporations Act. 
On April 25, 2016, we announced that our Board of Directors has named Joseph C. Papa to become our Chairman and Chief Executive Officer. Mr. Papa is expected to join the Company by early May.
Unless the context indicates otherwise, when we refer to “we”, “us”, “our” or the “Company” in this Annual Report on Form 10-K (“Form 10-K”), we are referring to Valeant Pharmaceuticals International, Inc. and its subsidiaries on a consolidated basis.
Introduction
We are a multinational, specialty pharmaceutical and medical device company that develops, manufactures, and markets a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. In the Developed Markets segment, we focus most of our efforts in the areas of dermatology, neurology, gastrointestinal (“GI”) disorders, and eye health therapeutic classes. In the Emerging Markets segment, we focus primarily on branded generics, OTC products, and medical devices. We are diverse not only in our sources of revenue from our broad drug and medical device portfolio, but also among the therapeutic classes and geographies we serve.
Business Strategy
Our strategy is to focus our business on core geographies and therapeutic classes that offer attractive growth opportunities while maintaining our lower selling, general and administrative cost model and decentralized operating structure. Within our chosen therapeutic classes and geographies, we primarily focus on durable products which have the potential for strong operating margins and sustainable organic growth. We believe these products are particularly attractive for a number of reasons including:
They are largely cash pay, or are reimbursed through private insurance, and, as a result, are less dependent on increasing government reimbursement pressures than other products;
They tend to have established brand names and do not rely primarily on patent or regulatory exclusivity;
They tend to have the potential for line extensions and life-cycle management programs; and
They tend to be smaller on an individual basis, and therefore typically not the focus of larger pharmaceutical companies.
Another critical element of our strategy is our lower risk, output-focused research and development model. This model allows us to advance certain development programs to drive future commercial growth, while minimizing our research and development expense. This is achieved primarily by:
focusing on innovation through our internal research and development, acquisitions, and in-licensing;
focusing on productivity through measures such as leveraging industry overcapacity and outsourcing commodity services;
focusing on critical skills and capabilities needed to bring new technologies to the market;
pursuing life-cycle management programs for currently marketed products to increase such products’ value during their commercial lives; and
acquiring dossiers and registrations for branded generic products in emerging markets, which require limited manufacturing start-up and development activities.

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Some of our key development programs are described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Products in Development” of this Form 10-K.
Our long-term strategy has also included deploying cash via business development, debt repayment and repurchases, and share buybacks. Since the Company’s (then named Biovail Corporation) acquisition of Valeant on September 28, 2010, we have completed numerous transactions to expand our portfolio offering and geographic footprint, including, among others, the acquisitions of Salix Pharmaceuticals, Ltd. (“Salix”) and Bausch & Lomb Holdings Incorporated (“B&L”). While we anticipate that business development through acquisitions may continue to be a component of our long-term strategy, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt levels. Additionally, as a result of the April 11, 2016 amendment to our Credit Agreement (as defined herein), until we file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (“First Quarter 2016 Form 10-Q”) and achieve a specified leverage ratio, we are subject to various restrictions that will impact how we conduct our business, including restrictions on making acquisitions, subject to certain exceptions, over an aggregate Transaction Cap (as defined herein) and from incurring any further debt to finance such acquisitions and a requirement that the proceeds from certain asset sales be used to repay the term loans under our Credit Agreement, instead of being reinvested in the business. In addition, our ability to, among other things, repurchase our common shares will also be restricted and subject to the Transaction Cap described above, until such time that we file our First Quarter 2016 Form 10-Q and achieve a specified leverage ratio. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions.
We believe our strategy will allow us to maximize both the growth rate and profitability of the Company and to enhance shareholder value.
Segment Information
We have two operating and reportable segments: (i) Developed Markets and (ii) Emerging Markets. Comparative segment information for 2015, 2014 and 2013 is presented in Note 23 titled "SEGMENT INFORMATION" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Our current product portfolio comprises approximately 1,800 products.
Developed Markets
The Developed Markets segment consists of (i) sales in the U.S. of pharmaceutical products, OTC products, and medical device products, as well as alliance and contract service revenues, in the areas of dermatology and podiatry, neurology, gastrointestinal disorders, eye health, oncology and urology, dentistry, aesthetics, and women's health, and (ii) pharmaceutical products, OTC products, and medical device products sold in Western Europe, Canada, Japan, Australia and New Zealand.
Pharmaceutical Products — Our principal pharmaceutical products include:
Xifaxan®, acquired as part of the Salix acquisition, including (i) tablets indicated for the treatment of irritable bowel syndrome with diarrhea ("IBS-D") in adults (launched in 2015) and for the reduction in risk of overt hepatic encephalopathy recurrence in adults and (ii) tablets indicated for the treatment of travelers’ diarrhea caused by noninvasive strains of Escherichia coli in patients 12 years of age and older.
Wellbutrin XL® is an extended-release formulation of bupropion indicated for the treatment of major depressive disorder in adults.
An Acne franchise, which includes Solodyn®, a prescription oral antibiotic approved to treat only the red, pus-filled pimples of moderate to severe acne in patients 12 years of age and older, as well as Ziana®, Clindagel®, Acanya®, Atralin®, Retin-A® franchise and Onexton® Gel, a fixed combination 1.2% clindamycin phosphate and 3.75% benzoyl peroxide medication for the once-daily treatment of comedonal (non-inflammatory) and inflammatory acne in patients 12 years of age and older.
Glumetza® (metformin hydrochloride) extended release tablets, acquired as part of the Salix acquisition, are indicated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus.
Provenge® (sipuleucel-T), acquired as part of the acquisition of certain assets of Dendreon Corporation, is an autologous cellular immunotherapy indicated for the treatment of asymptomatic or minimally symptomatic metastatic castrate-resistant (hormone-refractory) prostate cancer.
Jublia® (efinaconazole 10% topical solution), is a topical azole approved for the treatment of onychomycosis of the toenails (toenail fungus).

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Nitropress® (sodium nitroprusside), acquired as part of the acquisition of certain assets of Marathon Pharmaceuticals, LLC ("Marathon"), is indicated for the immediate reduction of blood pressure of patients in hypertensive crises.
Isuprel® (Isoproterenol hydrochloride) injections, acquired as part of the acquisition of certain assets of Marathon, is indicated for (i) mild or transient episodes of heart block that do not require electric shock or pacemaker therapy, (ii) for serious episodes of heart block and Adams-Stokes attacks (except when caused by ventricular tachycardia or fibrillation), (iii) for use in cardiac arrest until electric shock or pacemaker therapy, the treatments of choice, is available and (iv) for bronchospasm occurring during anesthesia.
Xenazine® is indicated for the treatment of chorea associated with Huntington’s disease. In the U.S., Xenazine® is distributed for us by Lundbeck LLC under an exclusive marketing, distribution and supply agreement.
Uceris® (budesonide) extended release tablets, acquired as part of the Salix acquisition, are a prescription corticosteroid medicine used to help get mild to moderate ulcerative colitis under control (induce remission).
Lotemax® Gel is a topical corticosteroid indicated for the treatment of post-operative inflammation and pain following ocular surgery. This formulation is a technology that allows the drug to adhere to the ocular surface and offers dose uniformity, which eliminates the need to shake the product in order to ensure the drug is in suspension. The product contains a low concentration of preservative and two known moisturizers.
Arestin® (minocycline hydrochloride) is a subgingival sustained-release antibiotic. Arestin® is indicated as an adjunct to scaling and root planing ("SRP") procedures for reduction of pocket depth in patients with adult periodontitis. Arestin® may be used as part of a periodontal maintenance program, which includes good oral hygiene and SRP.
OTC Products — Our principal OTC products include:
PreserVision® is an antioxidant eye vitamin and mineral supplement.
CeraVe® is a range of OTC products with essential ceramides and other skin-nourishing and skin-moisturizing ingredients (humectants and emollients) combined with a unique, patented Multivesicular Emulsion (MVE®) delivery technology that, together, work to rebuild and repair the skin barrier. CeraVe® formulations incorporate ceramides, cholesterol and fatty acids, all of which are essential for skin barrier repair and are used as adjunct therapy in the management of various skin conditions.
Biotrue® multi-purpose solution uses a lubricant also found in eyes and it is pH balanced to match healthy tears and helps prevent certain tear proteins from denaturing and fights germs for healthy contact lens wear.
ReNu Multiplus® is a sterile, preserved solution used to lubricate and rewet soft (hydrophilic) contact lenses. ReNu Multiplus® product contains povidone, a lubricant that can be used with daily, overnight, and disposable soft contact lenses.
Ocuvite® is a lutein eye vitamin and mineral supplement that contains lutein (an antioxidant carotenoid), a nutrient that supports macular health by helping filter harmful blue light.
Boston® solution is a specialty cleansing solution design for gas permeable ("GP") contact lenses.
Artelac® is a solution in the form of eye drops to treat dry eyes caused by chronic tear dysfunction.
Device Products — Our principal device products include:
A portfolio of ophthalmic surgical products, including (i) intraocular lenses such as Akreos®, enVista®, Crystalens®, and Trulign®, (ii) a suite of surgical instruments including Storz® and Synergetics®, and (iii) surgical equipment for cataract, refractive, and vitreoretinal surgery, such as Stellaris® PC, a vitreoretinal and cataract surgery system, VersaVIT2.0 for vitreoretinal surgery, and the VICTUS® femtosecond laser for cataract surgery.
SofLens® Daily Disposable Contact Lenses use ComfortMoist® Technology (a combination of thin lens design and moisture-rich packaging solution) and High Definition Optics™, an aspheric design that reduces spherical aberration over a range of powers, especially in low light.
Biotrue® ONEday daily disposable contact lenses are made of a unique material that works like the eye to form a dehydration barrier. The lens maintains over 98% of its moisture for up to 16 hours, it matches the water content of the cornea at 78%, and allows for the oxygen a healthy eye needs.

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Bausch + Lomb Ultra® is a silicone hydrogel frequent replacement contact lens that uses MoistureSeal® technology which allows the contact lens to retain 95% of moisture after 16 hours of wear, limiting lens dryness and resulting symptoms.
PureVision® is a silicone hydrogel frequent replacement contact lens using AerGel® technology lens material to allow natural levels of oxygen to reach the eye as well as resist protein buildup. The lens also incorporates an aspheric optical design that reduces spherical aberration.
Medical device systems for aesthetic applications including the Thermage CPT® system that provides non-invasive treatment options using radiofrequency energy for skin tightening.
Generic Products — Our principal branded and other generic products include:
Tobramycin and Dexamethasone ophthalmic suspension is indicated for steroid responsive inflammatory ocular conditions where superficial bacterial ocular infection or a risk of bacterial ocular infection exists.
Metronidazole is indicated to treat bacterial infections of the vagina, stomach, skin, joints, and respiratory tract.
Retin-A Micro® (tretinoin gel) microsphere, 0.04%/0.1% Pump, is an oil-free prescription-strength acne treatment.
Latanoprost is one of a group of medicines known as prostaglandins and is indicated to treat a type of glaucoma called open angle glaucoma and also ocular hypertension.
Other Revenues — We generate alliance revenue and service revenue from the licensing of products and from contract services mainly in the areas of dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third parties.
Emerging Markets
The Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products. Products are sold primarily in Central and Eastern Europe (primarily Poland and Russia), Asia, Latin America (Mexico, Brazil, Argentina, and Colombia and exports out of Mexico to other Latin American markets), Africa and the Middle East.
Branded and Other Generic Products and Branded Pharmaceuticals — Our branded generics and branded pharmaceuticals businesses in Europe, Asia, Latin America, Africa and the Middle East cover a broad range of treatments, including antibiotics, treatments for cardiovascular and neurological diseases, dermatological products, diabetic therapies, and eye health products, among many others (inclusive of the acquisition of Mercury (Cayman) Holdings, the holding company of Amoun Pharmaceutical Company S.A.E. (“Amoun”), in October 2015).
OTC — Our principal OTC products include:
ReNu Multiplus® is a sterile, preserved solution used to lubricate and rewet soft (hydrophilic) contact lenses. ReNu Multiplus® product contains povidone, a lubricant that can be used with daily, overnight, and disposable soft contact lenses.
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. Bedoyecta® is sold in an injectable form, as well as in a tablet form.
Artelac® is a solution in the form of eye drops to treat dry eyes caused by chronic tear dysfunction.
Ocuvite® is a lutein eye vitamin and mineral supplement that contains lutein (an antioxidant carotenoid), a nutrient that supports macular health by helping filter harmful blue light.
Device Products — Our principal device products include:
A portfolio of ophthalmic surgical products, including (i) intraocular lenses such as Akreos®, enVista®, Crystalens®, and Trulign®, (ii) a suite of surgical instruments including Storz® and Synergetics®, and (iii) surgical equipment for cataract, refractive, and vitreoretinal surgery, such as Stellaris® PC, a vitreoretinal and cataract surgery system, VersaVIT2.0 for vitreoretinal surgery, and the VICTUS® femtosecond laser for cataract surgery.
PureVision® is a silicone hydrogel frequent replacement contact lens using AerGel® technology lens material to allow natural levels of oxygen to reach the eye as well as resist protein buildup. The lens also incorporates an aspheric optical design that reduces spherical aberration.

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Medical device systems for aesthetic applications including the Thermage CPT® system that provides non-invasive treatment options using radiofrequency energy for skin tightening.
SofLens® Daily Disposable Contact Lenses use ComfortMoist® Technology (a combination of thin lens design and moisture-rich packaging solution) and High Definition Optics™, an aspheric design that reduces spherical aberration over a range of powers, especially in low light.
Research and Development
Our research and development (“R&D”) organization focuses on the development of products through clinical trials. Our research and development expenses for the years ended December 31, 2015, 2014 and 2013 were $334 million, $246 million and $157 million, respectively, excluding impairment charges. As of December 31, 2015, approximately 1,200 employees (including regulatory affairs and quality assurance employees) were involved in our R&D efforts.
For more information regarding our products in clinical development, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Products in Development” of this Form 10-K.
Trademarks, Patents and Proprietary Rights
We rely on a combination of contractual provisions, confidentiality policies and procedures and patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of our technology and business. Our policy is to vigorously protect, enforce and defend our rights to our intellectual property and proprietary rights, as appropriate. See Item 1A “Risk Factors” of this Form 10-K for additional information on the risk associated with our intellectual property and proprietary rights.
Trademarks
We believe that trademark protection is an important part of establishing product and brand recognition. We own or license a number of registered trademarks and trademark applications in the U.S., Canada and in various other countries throughout the world. U.S. federal registrations for trademarks remain in force for 10 years and may be renewed every 10 years after issuance, provided the mark is still being used in commerce. Trademark registrations in Canada remain in force for 15 years and may be renewed every 15 years after issuance, provided that, as in the case of U.S. federal trademark registrations, the mark is still being used in commerce. Other countries generally have similar but varying terms and renewal policies with respect to trademarks registered in those countries.
Data and Patent Exclusivity
For certain of our products, we rely on a combination of regulatory and patent rights to protect the value of our investment in the development of these 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 the U.S., Canada and the European Union (“EU”), generally patents expire 20 years from the date of application. We have obtained, acquired or in-licensed a number of patents and patent applications covering key aspects of certain of our principal products. In the aggregate, our patents are of material importance to our business taken as a whole. However, we do not consider any single patent material to our business as a whole.
In the U.S., the Hatch-Waxman Act provides non-patent regulatory exclusivity for five years from the date of the first FDA approval of a new drug compound in a New Drug Application (“NDA”). The FDA, with one exception, is prohibited during those five years from accepting for filing a generic, or ANDA, that references the NDA. In reference to the foregoing exception, if a patent is indexed in the FDA Orange Book for the new drug compound, a generic may file an ANDA four years from the NDA approval date if it also files a Paragraph IV Certification with the FDA challenging the patent. Protection under the Hatch-Waxman Act will not prevent the filing or approval of another full NDA. However, the NDA applicant would be required to conduct its own pre-clinical and adequate and well-controlled clinical trials to independently demonstrate safety and effectiveness.
A similar data exclusivity scheme exists in the EU, 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 Medicines Agency (“EMA”) and no generic drug can be marketed for ten years from the approval of the innovator product. Under both the U.S. and the EU 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. Canada employs a similar data exclusivity regulatory regime for innovative drugs.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a disease or condition that affects populations of fewer than 200,000 individuals in the U.S. or a disease whose incidence rates number more

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than 200,000 where the sponsor establishes that it does not realistically anticipate that its product sales will be sufficient to recover its costs. The sponsor that obtains the first marketing approval for a designated orphan drug for a given rare disease is eligible to receive marketing exclusivity for use of that drug for the orphan indication for a period of seven years.
Proprietary Know-How
We also rely upon unpatented proprietary know-how, trade secrets and technological innovation in the development and manufacture of many of our principal products. We protect our proprietary rights through a variety of methods, including confidentiality and non-disclosure agreements and proprietary information agreements with vendors, employees, consultants and others who may have access to proprietary information.
Government Regulations
Government authorities in the U.S., at the federal, state and local level, in Canada, in the EU and in other countries extensively regulate, among other things, the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and reporting, packaging, advertising and promotion, storage, distribution, marketing and export and import of pharmaceutical products and medical devices. As such, our products and product candidates are subject to extensive regulation both before and after approval. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with these regulations could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product candidate, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions or criminal prosecution.
Prior to human use, FDA approval (drugs (in the form of an NDA or ANDA for generic equivalents), biologics (in the form of a Biologics License Application (“BLA”)) and some medical devices) or marketing clearance (other devices) must be obtained in the U.S., approval by Health Canada must be obtained in Canada, EMA approval (drugs) or a CE Marking (devices) must be obtained for countries that are part of the EU and approval must be obtained from comparable agencies in other countries prior to manufacturing or marketing new pharmaceutical products or medical devices. Generally, preclinical studies and clinical trials of the products must first be conducted and the results submitted to the applicable regulatory agency (such as the FDA) for approval.
Regulation by other federal agencies, such as the Drug Enforcement Administration (“DEA”), and state and local authorities in the U.S., and by comparable agencies in certain foreign countries, is also required. In the U.S., the Federal Trade Commission (the “FTC”), the FDA and state and local authorities regulate the advertising of medical devices, prescription drugs, over-the-counter drugs and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended and the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, sale, distribution, advertising and promotion of our products. The FDA requires a Boxed Warning (sometimes referred to as a “Black Box” Warning) for products that have shown a significant risk of severe or life-threatening adverse events and similar warnings are also required to be displayed on the product in certain other jurisdictions.
Manufacturers of pharmaceutical products and medical devices are required to comply with manufacturing regulations, including current good manufacturing practices and quality system management requirements, enforced by the FDA and Health Canada, in the U.S. and Canada respectively, and similar regulations enforced by regulatory agencies in other countries and we may face ongoing audits of our facilities and plants and those of our contract manufacturers by the FDA and such other regulatory agencies. In addition, we are subject to price control restrictions on our pharmaceutical products in many countries in which we operate.
We are also subject to extensive U.S. federal and state health care marketing and fraud and abuse regulations, such as the federal False Claims Act, federal and provincial marketing regulation in Canada and similar regulations in foreign countries in which we may conduct our business. The federal False Claims Act imposes civil and criminal liability on individuals or entities who submit (or cause the submission of) false or fraudulent claims for payment to the government. The U.S. federal Anti-Kickback Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal or state healthcare program such as the Medicare and Medicaid programs. Some state anti-kickback laws also prohibit such conduct where commercial insurance, rather than federal or state, programs are involved. Due to recent legislative changes, violations of the U.S. federal Anti-Kickback Statute also carry potential federal False Claims Act liability. In addition, in the U.S., companies may not promote drugs or medical devices for “off-label” uses - that is, uses that are not described in the product’s labeling and that differ from those that were approved or cleared by the FDA - and “off-label promotion” has also formed the predicate for False Claims Act liability resulting in significant financial settlements. These and other laws and regulations, rules and policies may significantly impact the manner in which we are permitted to market our products. If our operations are found to be in violation of any of these laws, regulations, rules or policies or any other law or

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governmental regulation, or if interpretations of the foregoing change, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
We may also be subject to various privacy and security regulations, including, but not limited to, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (collectively, "HIPAA"). HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions (e.g., health care claims information and plan eligibility, referral certification and authorization, claims status, plan enrollment, coordination of benefits and related information), as well as standards relating to the privacy and security of individually identifiable health information. These standards require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. Complying with these laws involves costs to our business, and failure to comply with these laws can result in the imposition of significant civil and criminal penalties.
Successful commercialization of our products may depend, in part, on the availability of governmental and third party payor reimbursement for the cost of our products. Third party payors may include government health administration authorities, private health insurers and other organizations. In the U.S., the E.U. and other significant or potentially significant markets for our products and product candidates, government authorities and third party payors are increasingly attempting to limit or regulate the price of medical products and services, which has resulted in lower average selling prices. In the U.S., these pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. In particular, sales of our products may be subject to discounts from list price and rebate obligations, as well as formulary coverage decisions impacting or limiting the types of patients for whom coverage will be provided. Various U.S. healthcare and other laws regulate our interactions with government agencies, private insurance companies and other third party payors regarding coverage and reimbursement for our products. Failure to comply with these laws could subject us to civil, criminal and administrative sanctions. In countries outside the U.S., the success of our products may depend, at least in part, on obtaining and maintaining government reimbursement because in many countries, patients are unlikely to use prescription drugs that are not reimbursed by their governments. In addition, negotiating prices with certain governmental authorities for newly developed products can delay commercialization. In many international markets, governments control the prices of prescription pharmaceuticals, including through the implementation of reference pricing, price cuts, rebates, revenue-related taxes, tenders and profit control, and they expect prices of prescription pharmaceuticals to decline over the life of the product or as volumes increase.
See Item 1A “Risk Factors” of this Form 10-K for additional information on the risks associated with these regulations and related matters.
Environmental and Other Regulation
Our facilities and operations are subject to federal, state and local environmental and occupational health and safety laws and regulations in both the U.S. and countries outside the U.S., including those governing the discharges of substances into the air, water and land, the handling, storage and disposal of hazardous wastes, wastewater and solid waste, the cleanup of properties affected by known pollutants and other environmental matters. Certain of our development and manufacturing activities involve the controlled use of hazardous materials. We believe we are in compliance in all material respects with applicable environmental laws and regulations. We are not aware of any pending litigation or significant financial obligations arising from current or past environmental practices that are likely to have a material adverse effect on our financial position. We cannot assure, however, that environmental liabilities relating to facilities owned or operated by us will not develop in the future, and we cannot predict whether any such liabilities, if they were to develop, would require significant expenditures on our part. In addition, we are unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection, hazardous materials management and waste disposal. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Marketing and Customers
Our top four geographic markets by country, based on 2015 revenue, are: the U.S. and Puerto Rico, Canada, China and Poland, which represent 68%, 3%, 3% and 2% of our total revenue for the year ended December 31, 2015, respectively.
The following table identifies external customers that accounted for 10% or more of our total revenue for the years ended December 31, 2015, 2014 and 2013:

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2015
 
2014
 
2013
McKesson Corporation
 
20%
 
17%
 
19%
AmerisourceBergen Corporation
 
14%
 
10%
 
7%
Cardinal Health, Inc.
 
12%
 
9%
 
13%
No other customer generated over 10% of our total revenues.
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. Certain products were dispensed through the Philidor pharmacy network. In October 2015, we announced that we would be severing all ties with Philidor, and effective November 1, 2015, we signed an agreement terminating all arrangements with or relating to Philidor, other than certain transition services which ended in January 2016 (see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K for additional information regarding Philidor, as well as our new fulfillment agreements with Walgreens). As part of our marketing program for pharmaceuticals, we use direct to customer advertising, direct mailings, advertise in trade and medical periodicals, exhibit products at medical conventions and sponsor medical education symposia.
Competition
Competitive Landscape for Products and Products in Development
The pharmaceutical and medical device industries are highly competitive. Our competitors include specialty and other large pharmaceutical companies, medical device companies, biotechnology companies, OTC companies and generic manufacturers, in the U.S., Canada, Europe, Asia, Latin America and in other countries in which we market our products. The dermatology competitive landscape is highly fragmented, with a large number of mid-size and smaller companies competing in both the prescription sector and the OTC and cosmeceutical sectors. With respect to the GI market, generic entrants continue to capture significant share for treatment of many GI conditions. In the area of irritable bowel syndrome ("IBS") and opioid induced constipation ("OIC"), competitors have recently launched new competing products, which should increase the size of these markets and intensify competition. The market for eye health products is very competitive, both across product categories and geographies. In addition to larger diversified pharmaceutical and medical device companies, we face competition in the eye health market from mid-size and smaller, regional and entrepreneurial companies with fewer products in niche areas or regions.
Our competitors are pursuing the development and/or acquisition of pharmaceuticals, medical devices and OTC products that target the same diseases and conditions that we are targeting in dermatology and podiatry, GI disorders, eye health and other therapeutic areas. Academic and other research and development institutions may also develop products or technologies that compete with our products, which technologies and products may be acquired or licensed by our competitors. These competitors may have greater financial, R&D or marketing resources than we do. If competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our products can be subject to progressive price reductions or decreased volume of sales, or both. Most new products that we introduce must compete with other products already on the market or products that are later developed by competitors.
We sell a broad range of products, and competitive factors vary by product line and geographic area in which the products are sold. The principal methods of competition for our products include quality, efficacy, market acceptance, price, and marketing and promotional efforts.
Generic Competition
We face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of our currently marketed products expire or are successfully challenged or when the regulatory exclusivity for our products expires or is otherwise lost. Generic versions are generally significantly less expensive than branded versions, and, where available, may be required to be utilized before or in preference to the branded version under third party reimbursement programs, or substituted by pharmacies. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product. To successfully compete for business with managed care and pharmacy benefits management organizations, we must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared with other forms of care.
A number of our products already face generic competition, including, among others, Glumetza®, Vanos® (in the U.S.), Wellbutrin XL® (in the U.S. and Canada), Zovirax® ointment, certain strengths of Retin-A Micro®, Carac®, Xenazine®, Targetin® capsules, Atralin®, and Tasmar®. In addition, certain of our products face the expiration of their patent or regulatory

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exclusivity in 2016 or in later years, following which we anticipate generic competition of these products. In addition, in certain cases, as a result of negotiated settlements of some of our patent infringement proceedings against generic competitors, we have granted licenses to such generic companies, which will permit them to enter the market with their generic products prior to the expiration of our applicable patent or regulatory exclusivity. Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors may launch in 2016 or in later years. Our products facing a potential loss of exclusivity and/or generic competition in 2016 and in later years include, among others, the following: in 2016, Ziana®, Zirgan®, Visudyne®, Zegerid®, Virazole®, and Nitropress®; in 2017, Lotemax® Gel, Macugen®, Deflux®, Solesta®, and Isuprel®; in 2018, Acanya®, Solodyn®, Istalol®, Elidel®, and Moviprep®; in 2019, Zyclara®; and in 2020, Luzu® and Tiazac® (in Canada).
In addition, for a number of our products (including Xifaxan®, Relistor®, Onexton®, Prolensa®, Uceris®, Moviprep®, Acanya®, Bepreve® and Apriso®), we have commenced infringement proceedings against potential generic competitors in the U.S. and Canada. If we are not successful in these proceedings, we may face increased generic competition for these products. See Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details regarding certain of these infringement proceedings.
See Item 1A “Risk Factors” of this Form 10-K for additional information on our competition risks.
Manufacturing
We currently operate approximately 50 manufacturing plants worldwide. All of our manufacturing facilities that require certification from the FDA, Health Canada 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, where the selling company is manufacturing the acquired products, 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 manufacturing agreements with third parties. Where the acquired products are manufactured by contract manufacturers, we generally assume those arrangements from the selling company.
Products representing approximately half of our product sales for 2015 are produced by third party manufacturers under manufacturing arrangements.
In some cases, the principal raw materials, including active pharmaceutical ingredient, used by us (or our third party manufacturers) for our various products are purchased in the open market or are otherwise available from several sources. However, some of the active pharmaceutical ingredients and other raw materials used in our products and some of the finished products themselves are currently only available from a single source; or others may in the future become available from only one source. In addition, in some cases, only a single source of such active pharmaceutical ingredient is identified in filings with regulatory agencies, including the FDA, and cannot be changed without prior regulatory approval. Any disruption in the supply of any such single-sourced active pharmaceutical ingredient, other raw material or finished product or an increase in the cost of such materials or products could adversely impact our ability to manufacture or sell such products, the ability of our third party manufacturers to supply us with such products, or our profitability. We attempt to manage the risks associated with reliance on single sources of active pharmaceutical ingredient, other raw materials or finished products by carrying additional inventories or, where possible, developing second sources of supply. See Item 1A “Risk Factors” of this Form 10-K for additional information on the risks associated with our manufacturing arrangements.
Employees
As of December 31, 2015, we had approximately 22,000 employees. These employees included approximately 10,100 in production, 8,600 in sales and marketing, 2,100 in general and administrative positions and 1,200 in R&D (including regulatory affairs and quality assurance). Collective bargaining exists for some employees in a number of countries in which we do business. We 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
Since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after that date.  In the future, we will continue to re-evaluate our decision to self-insure and may purchase additional product liability insurance to cover product liability risk. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Seasonality of Business

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Historically, revenues from our business tend to be weighted toward the second half of the year. Sales in the first quarter tend to be lower as patient co-pays and deductibles reset at the beginning of each year.  Further, the third quarter “back to school” period favorably impacts demand for certain of our dermatology products.  Sales in the fourth quarter tend to be higher based on consumer and customer purchasing patterns associated with healthcare reimbursement programs. However, there are no assurances that these historical trends will continue in the future.
We expect the weighting of revenues toward the second half of the year to be more pronounced in 2016, given the transition of certain of our products under the fulfillment arrangements with Walgreens described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K. 
Geographic Areas
A significant portion of our revenues is generated from operations or otherwise earned outside the U.S. and Canada. 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 and economic instability and restrictive governmental actions including possible nationalization or expropriation. Changes in the relative values of currencies may materially affect our results of operations. For a discussion of these risks, see Item 1A “Risk Factors” of this Form 10-K.
See Note 23 titled “SEGMENT INFORMATION” of notes to consolidated financial statements in Item 15 of this Form 10-K for detailed information regarding revenues and long-lived assets by geographic area.
In 2015, a material portion of our revenue and income was earned in Ireland, Luxembourg and Switzerland, which have low tax rates. See Item 1A “Risk Factors” of this Form 10-K relating to tax rates.
Available Information
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 Exchange Act of 1934, as amended. All such filings are available through our website free of charge. The information on our Internet website is not incorporated by reference into this Form 10-K or our other securities filings and is not a part of such filings.
We are also required to file reports and other information with the securities commissions in all provinces in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document gathering and retrieval system.
Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, 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 an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

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Item 1A.    Risk Factors
Our business, financial condition, cash flows and results of operations are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including those risks set forth under the heading entitled “Forward-Looking Statements”, and in other documents that we file with the SEC and the CSA, before making any investment decision with respect to our common shares or debt securities. If any of the risks or uncertainties actually occur or develop, our business, financial condition, cash flows, results of operations and/or future growth prospects could change, and such change could be materially adverse. Under these circumstances, the market value of our common shares and/or debt securities could decline, and you could lose all or part of your investment in our common shares and/or debt securities.
Restatement and Related Risks
The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
As discussed herein, we have restated our previously issued audited financial statements for the year ended December 31, 2014 and the unaudited financial information for the quarter ended December 31, 2014 included in our Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited financial statements for the quarter ended March 31, 2015 included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as well as the financial statements for the six-month period ended June 30, 2015 included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and the nine-month period September 30, 2015 included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (due to the fact that the financial results for the quarter ended March 31, 2015 are included within these financial statements). This restatement (including the review of the misstatements that necessitated our restatement of our financial statements) has been time consuming and expensive and could expose us to potential claims and additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In particular, we have incurred substantial unanticipated expenses and costs, including audit, legal, consulting and other professional fees, in connection with the completed review conducted by the Ad Hoc Committee, the restatement of our previously issued financial statements and the ongoing remediation of material weaknesses in our internal control over financial reporting. Certain remediation actions have been recommended and we are in the process of implementing them (see Item 9A "Controls and Procedures" of this Form 10-K for a description of these remediation measures). To the extent these steps are not successful, we could be forced to incur additional time and expense. Our management’s attention has also been diverted from the operation of our business in connection with the restatement and these ongoing remediation efforts. In addition, as a result of these restatements, we could be subject to additional shareholder, governmental, or other actions in connection with the restatements or related or other matters. Any such proceedings would, regardless of the outcome, consume a significant amount of management’s time and attention and would result in additional legal, accounting and other costs. If we were not to prevail in any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the restatements and related matters could further impair our reputation or could lead to a further loss of investor confidence. Furthermore, this restatement and any future restatements may result in further downgrades by rating agencies in our corporate credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances.
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely affect our ability to report our financial condition, cash flows and results of operations in a timely and accurate manner and/or increase the risk of future misstatements, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Based on the review by the Ad Hoc Committee, the Company's review of its financial records, and other work completed by management, the Company and the ARC have concluded that material weaknesses in the Company's internal control over financial reporting existed that contributed to the material misstatements in the consolidated financial statements described above. As a result, certain remediation actions have been recommended and we are in the process of implementing them, but our remediation efforts are not complete and are ongoing. If we do not complete our remediation in a timely manner or if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses in our internal controls are discovered or occur in the future, it may materially adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner and there will continue to be an increased risk of future misstatements. Although we regularly review and evaluate internal control systems to allow management to report on the effectiveness of our internal control over financial reporting, we may discover additional weaknesses in our internal control over financial reporting or disclosure controls and procedures. The next time we evaluate our internal control over financial reporting and disclosure controls and procedures, if we identify one or more new material weaknesses or have been unable to timely remediate

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our existing material weaknesses, we would be unable to conclude that our internal control over financial reporting or disclosure controls and procedures are effective. If we are unable to conclude that our internal control over financial reporting or our disclosure controls and procedures are effective, or if our independent registered public accounting firm expresses an opinion that our internal control over financial reporting is ineffective, we may not be able to report our financial condition and results of operations in a timely and accurate manner, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In addition, any potential future restatements could subject us to additional adverse consequences, including sanctions or investigations by the SEC or the CSA, shareholder litigation and other adverse actions. Moreover, we may be the subject of further negative publicity focusing on the financial statement adjustments and resulting restatement and negative reactions from our shareholders, creditors or others with whom we do business. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Delays in the filing of future Exchange Act reports, the related financial statements and other required securities reporting obligations may result in a default under one or more of the indentures governing our outstanding senior notes and/or under our Credit Agreement, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
If any future misstatements, restatements or material weaknesses in our internal control over financial reporting and disclosure controls and procedures are discovered or occur, this may result in a delay in filing future Exchange Act reports and other required filings under applicable securities laws.
Under the indentures governing our outstanding senior notes, if we do not file required reports within specified time periods, we will be in default due to the breach of the reporting covenant in the indentures and the trustee or holders of at least 25% of any series of notes may deliver a notice of default for such series of notes. If we do not cure this default by filing the delayed report within a 60-day cure period, the notes may be accelerated by the trustee or holders of at least 25% of the series of notes that provided the notice of default. Furthermore, the occurrence of a default  in the reporting covenant under any of our senior note indentures would result in a cross default under our Credit Agreement which would impact our ability to draw on our revolving credit facility and could lead to an acceleration of the Credit Agreement.
The acceleration of one series of notes could result in a cross acceleration to other series of notes or the loans under the Credit Agreement, and the acceleration of the loans under the Credit Agreement could result in a cross acceleration to our senior notes.  If any of our notes or any of the loans under our Credit Agreement are accelerated, we may not have sufficient funds to satisfy our debt obligations.  While we may be successful in obtaining relief or an extension of time under the indentures and/or the Credit Agreement, we cannot guarantee that such relief or extension would be granted or, if granted, would provide us with a sufficient period of time to cure the reporting default. In addition, in order to obtain any such relief or extension, we may be required to accept terms that are adverse to us and we may incur significant costs.
Under our Credit Agreement, if we do not file required reports within specified time periods, we will be in breach of the reporting covenant in the Credit Agreement, which would permit a majority of the lenders in principal amount thereunder to accelerate the loans if we do not cure the default within a specified cure period. Although the April 2016 amendment extends the deadline to file our First Quarter 2016 Form 10-Q under our Credit Agreement to July 31, 2016, we may be delayed in filing beyond such date and we may be delayed in filing other required reports, any of which could result in a default under our Credit Agreement. In addition, while the filing of this Form 10-K has cured the default under our senior note indentures triggered by the failure to timely file this Form 10-K, any future delays in our required Exchange Act filings may result in additional defaults under our senior note indentures.  Under the terms of our senior note indentures, if we do not file the First Quarter 2016 Form 10-Q by May 16, 2016, we will be in default under the terms of our senior note indentures. Although the April 2016 amendment waives any cross default that would be triggered under our Credit Agreement as a result of this default under the senior note indentures, the April 2016 amendment does not prevent the trustee or the holders under any of our senior note indentures from delivering a notice of default should we be delayed in filing the First Quarter 2016 Form 10-Q beyond the deadline for the filing of such report set forth in the applicable indenture. Any such notice of default related to a late filing of our First Quarter 2016 Form 10-Q may result in shortening the extended deadline of July 31, 2016 for filing such First Quarter 2016 Form 10-Q under the Credit Agreement.
We may also face further reputational harm or loss of investor confidence as a result of any future delays in the filing of Exchange Act reports or other required filings under applicable securities laws, including as a result of the expected delay in filing our First Quarter 2016 Form 10-Q.
A delay in making any of our required securities filings and the associated default under any of our indentures or Credit Agreement could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.

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Employment-related Risks
We have identified a candidate to succeed our current chief executive officer and our inability to successfully manage the transition to our new chairman and chief executive officer or other operational disruptions resulting from this transition could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We recently announced that our current chief executive officer, J. Michael Pearson, will be leaving the Company and that we have named Joseph C. Papa to become our new Chairman and Chief Executive Officer. The loss of Mr. Pearson as our chief executive officer could create disruptions in the operations of our business and could cause concerns and instability for management, employees, current and potential customers, other third parties with whom we do business, credit rating agencies and our shareholders and debt holders regarding our ability to continue to execute our business strategy and manage operations in the manner previously conducted, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Furthermore, the transition to our new chairman and chief executive officer may be difficult to manage and we cannot guarantee that the selected replacement will efficiently transition into the roles of chairman and chief executive officer or ultimately be successful in such roles. During this transition period, we may experience operational disruptions and there may be additional uncertainty, instability and concerns for management, employees, current and potential customers, other third parties with whom we do business and shareholders and we may experience difficulties in executing our business strategies and goals. Furthermore, our new chairman and chief executive officer may implement changes to our business strategies, which could create further disruption and uncertainty among management, employees, current and potential customers, other third parties with whom we do business and shareholders. Any of these factors relating to the appointment and transition of our new chairman and chief executive officer could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The loss of the services of, or our inability to recruit, retain, motivate, our executives and other key employees could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We must continue to retain and motivate our executives and other key employees, and to recruit other executives and employees, in order to strengthen our management team and workforce. For example, given recent events, we anticipate the need to recruit additional employees for our finance team, including a new corporate controller. A failure by us to retain, motivate and recruit executives and other key employees or the unanticipated loss of the services of any of these executives or key employees for any reason, whether temporary or permanent, could create disruptions in our business, could cause concerns and instability for management and employees, current and potential customers, credit rating agencies and other third parties with whom we do business and our shareholders and debt holders and could cause concern regarding our ability to execute our business strategy or to manage operations in the manner previously conducted and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. Furthermore, as a result of any failure to retain, or loss of, any executives or key employees, we may experience increased costs in order to identify and recruit a suitable replacement in a timely manner (and, even if we are able to hire a qualified successor, the search process and transition period may be difficult to manage and result in additional periods of uncertainty), which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. With respect to the need to recruit key finance employees, if we are unable to recruit such employees in a timely manner, we may be adversely impacted in our efforts to remediate existing material weaknesses in our internal control over financial reporting and in our efforts to avoid future material weaknesses and misstatements.
Legal and Reputational Risks
We are the subject of a number of recent legal proceedings, investigations and inquiries respecting certain of our distribution, marketing, pricing, disclosure and accounting practices, including our former relationship with Philidor, which have had and could continue to have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations, could result in additional claims and material liabilities, and could cause the market value of our common shares and/or debt securities to decline.
We are the subject of a number of recent legal proceedings and investigations and inquiries by governmental agencies, including the following: (i) investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York relating to certain matters, including the Company’s patient assistance programs, its former relationship with Philidor and other pharmacies, its accounting treatment for sales by specialty pharmacies, financial support provided by the Company for patients, distribution of the Company's products, information provided to the Centers for Medicare and Medicaid Services, discounts

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and rebates on the Company's products and issues related to the Company’s pricing decisions; (ii) the investigation by the SEC of the Company relating to certain matters, including the Company’s former relationship with Philidor, its accounting practices and policies and its public disclosures; (iii) investigations by the U.S. Senate Special Committee on Aging and the U.S. House Committee on Oversight and Government Reform relating to certain matters, including the Company’s pricing decisions on particular drugs, as well as financial support provided by the Company for patients and matters relating to the Company’s research and development program, Medicare, and Medicaid; (iv) an investigation by the State of North Carolina Department of Justice relating to certain matters, including the production, marketing, distribution, sale and pricing of, and patient assistance programs covering, the Company's Nitropress®, Isuprel® and Cuprimine® products and the Company's pricing decisions for certain of its other products; (v) a request for documents and other information received by the Company from the AMF relating to certain matters, including with respect to its former relationship with Philidor and its accounting practices and policies; (vi) a document subpoena from the New Jersey State Bureau of Securities relating to the Company’s former relationship with Philidor, its accounting treatment for sales to Philidor, its financial reporting and public disclosures and other matters; and (vii) a number of purported class action securities litigations in the U.S. and Canada have been instituted, the allegations of which relate to, among other things, allegedly false and misleading statements by the Company and/or failures to disclose information about the Company’s business and prospects, including relating to drug pricing, the Company’s policies and accounting practices, the Company’s use of specialty pharmacies, and the Company’s former relationship with Philidor. In addition, the completed review of the Ad Hoc Committee could result in additional legal proceedings and investigations and inquiries by governmental agencies. Philidor is also subject to disputes with third party payors and governmental investigations related to its business practices and relationship with the Company which may result in claims being asserted against the Company. For more information regarding legal proceedings, see Note 21 titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
We are unable to predict how long such proceedings, investigations and inquiries will continue, but we anticipate that we will continue to incur significant costs in connection with these matters and that these proceedings, investigations and inquiries will result in a substantial distraction of management’s time, regardless of the outcome. These proceedings, investigations and inquiries may result in damages, fines, penalties or other administrative sanctions against the Company and/or certain of our officers, or in changes to our business practices. Furthermore, publicity surrounding these proceedings, investigations and inquiries or any enforcement action as a result thereof, even if ultimately resolved favorably for us, coupled with the recent intensified public scrutiny of our Company and certain of its practices, could result in additional investigations and legal proceedings. As a result, these proceedings, investigations and inquiries could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The completed review of the Ad Hoc Committee of our Board of Directors, the restatement of our previously issued financial statements, the misstatements that resulted in such restatement, the material weaknesses that have been identified in our internal control over financial reporting and the determination that our disclosure controls and procedures were not effective at certain times, could result in additional litigation and governmental proceedings and investigations, which could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The Ad Hoc Committee has now completed its review. Based on the review by the Ad Hoc Committee and additional work and analysis by the Company, certain misstatements in the Company’s financial results were identified which resulted in the restatement of certain of the Company’s previously issued financial statements and the Company also concluded that certain material weaknesses exist in the Company’s internal control over financial reporting and that, as a result, the Company’s disclosure controls and procedures were not effective at specified times. The completed review by the Ad Hoc Committee, the restatement of our previously issued financial statements and the misstatements and material weaknesses identified by the Company could expose us to a number of additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In particular, we could be subject to further shareholder litigation and additional governmental investigations and proceedings arising from the completed review by the Ad Hoc Committee. Any such proceedings, regardless of the outcome, would consume a significant amount of management’s time and attention and would result in additional legal, accounting and other costs. If we do not prevail in any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the Company has experienced and may continue to experience reputational harm and a loss of investor confidence as a result of these matters.
Our business practices, including with respect to pricing, are under scrutiny. Any changes to our practices relating to pricing or the current prices of products, whether imposed, legislated or voluntary, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are under scrutiny with respect to our business practices (including with respect to pricing), including investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York, the State of North Carolina

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Department of Justice, the U.S. Senate Special Committee on Aging, the U.S. House Committee on Oversight and Government Reform, various purported class action suits against us in the U.S. and Canada and certain recent statements made (and actions threatened to be taken) by third parties with respect to certain of our products. We are unable to predict how such proceedings, investigations and inquiries will impact our business practices, including with respect to pricing, or the prices of our products, including whether we will be required to impose pricing freezes or controls, pricing reductions (including on a retroactive basis) or other price regulation for some or all of our products.
In addition, in recent years, in the U.S., state and federal governments have considered implementing legislation that would control or regulate the prices of drugs. Other countries have announced or implemented measures on pricing, including the suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments. These measures and proposed measures vary by country. These measures and these proposed measures and legislation, if implemented, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are involved in various other legal and governmental proceedings that are uncertain, costly and time-consuming and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are involved in a number of other legal and governmental proceedings and may be involved in additional litigation in the future. These proceedings are complex and extended and occupy the resources of our management and employees. These proceedings are also costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in our favor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such proceedings. Defending against or settling such claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. For more information regarding legal proceedings, see Note 21 titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
For example, the pharmaceutical industry, and our Company in particular, has been the focus of both private payor and governmental concern regarding pricing of pharmaceutical products. Related actions, including Congressional and other governmental investigations and litigation, are costly and time-consuming, and adverse resolution of such actions or changes in our business practices, such as our approach to the pricing of our pharmaceutical products, could adversely affect our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Further, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related to our products will be routinely challenged (as is the case with the recent patent infringement proceeding commenced in connection with our Xifaxan® product and related patents), and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell products, including our generic products, or could be required to pay monetary damages or royalties to license proprietary rights from third parties.
In addition, in the U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement of patent litigation, alleging that such settlements are anti-competitive and in violation of antitrust laws. In the U.S. and Europe, regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to patent infringement and prosecution. A successful antitrust claim by a private party or government entity against us could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We depend on third parties to meet their contractual, legal, regulatory, and other obligations.
We rely on distributors, suppliers, contract research organizations, vendors, service providers, business partners and other third parties to research, develop, manufacture, distribute, market and sell our products, as well as perform other services relating to our business. We rely on these third parties to meet their contractual, legal, regulatory and other obligations. A failure to maintain

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these relationships or poor performance by these third parties could negatively impact our business. In addition, we cannot guarantee that the contractual terms and protections and compliance controls, policies and procedures we have put in place will be sufficient to ensure that such third parties will meet their legal, contractual and regulatory obligations or that these terms, controls, policies, procedures and other protections will protect us from acts committed by our agents, contractors, distributors, suppliers, service providers or business partners that violate contractual obligations or the laws or regulations of the jurisdictions in which we operate, including matters respecting anti-corruption, fraud, kickbacks and false claims, pricing, sales and marketing practices, privacy laws and other legal obligations. Any failure of such third parties to meet these legal, contractual and regulatory obligations or any improper actions by such third parties or even allegations of such non-compliance or actions could damage our reputation, adversely impact our ability to conduct business in certain markets and subject us to civil or criminal legal proceedings and regulatory investigations, monetary and non-monetary damages and penalties and could cause us to incur significant legal and investigatory fees and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. For example, the recent allegations about the activities of Philidor and our former relationship with Philidor have resulted in a number of investigations, inquiries and legal proceedings against us, which may damage our reputation and result in damages, fines, penalties or administrative sanctions against the Company and/or certain of our officers. For more information regarding legal proceedings, see Note 21 titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
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, and we may be subject to exposure relating to product liability claims. In addition, our product liability self-insurance program may not be adequate to cover future losses.
We face an inherent business risk of exposure to significant product liability and other claims in the event that the use of our products caused, or is alleged to have caused, adverse effects. Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or potentially dangerous drug interactions that we may not learn about or understand fully until the drug has been administered to patients for some time. The withdrawal of a product following complaints and/or incurring significant costs, including the requirement to pay substantial damages in personal injury cases or product liability cases, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In addition, since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after that date. We currently reserve for anticipated losses and related expenses. We periodically evaluate and adjust our claims reserves to reflect trends in our own experience, as well as industry trends. However, historical loss trends may not be adequate to cover future losses, as historical trends may not be indicative of future losses. If ultimate results exceed our estimates, this would result in losses in excess of our reserved amounts. If we were required to pay a significant amount on account of these liabilities for which we self-insure, this could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our marketing, promotional and business practices, including with respect to pricing, as well as the manner in which sales forces interact with purchasers, prescribers and patients, are subject to extensive regulation and any material failure to comply could result in significant sanctions against us.
The marketing, promotional and business practices, including with respect to pricing, of pharmaceutical and medical device companies, as well as the manner in which companies’ in-house or third party sales forces interact with purchasers, prescribers, and patients, are subject to extensive regulation, enforcement of which may result in the imposition of civil and/or criminal penalties, injunctions, and/or limitations on marketing practice for some of our products and/or pricing restrictions or mandated price reductions for some of our products. Many companies, including us, have been the subject of claims related to these practices asserted by federal authorities. These claims have resulted in fines and other consequences. Companies may not promote drugs for “off-label” uses - that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA, Health Canada, EMA or other applicable regulatory agencies. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management's attention could be diverted from our business operations and our reputation could be damaged. For more information regarding legal proceedings, see Note 21 titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
Debt-related Risks
Our Credit Agreement and the indentures governing our senior notes impose restrictive and financial covenants on us. Our failure to comply with these covenants could trigger events, which, if not cured or waived, could result in the acceleration of the related debt, a cross-default or cross-acceleration to other debt, foreclosure upon any collateral securing the debt and termination of any commitments to lend, each of which would have a material adverse effect on our business, financial condition,

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cash flows and results of operations and would cause the market value of our common shares and/or securities to decline and could lead to bankruptcy or liquidation.
Our Credit Agreement and the various indentures governing our senior notes contain covenants that restrict the way we conduct business, as well as financial covenants that, for example, require us to maintain certain financial ratios at fiscal quarter end and satisfy certain financial tests upon incurrence of certain debt.  As of December 31, 2015, we were in compliance with all covenants associated with our outstanding debt. However, subsequent to December 31, 2015, the delay in filing our Form 10-K for the fiscal year ended December 31, 2015 resulted in a violation of covenants contained in our Credit Agreement and senior note indentures, for which we received several notices of default in April 2016 in respect of certain series of our senior notes.  All defaults under the Credit Agreement resulting from the failure to timely deliver the Form 10-K have been waived by the requisite lenders under our Credit Agreement by the April 2016 amendment, and this Form 10-K has been filed within the extended timeframe granted to us as part of that amendment.  The default under our senior note indentures arising from the failure to timely file the Form 10-K was cured in all respects by the filing of this Form 10-K. Delays in the filing of future Exchange Act reports, the related financial statements and other required securities reporting obligations (including the expected delay in filing our First Quarter 2016 Form 10-Q) may result in a default under our Credit Agreement or one or more of our senior note indentures.  See "—Restatement and Related Risks-Delays in the filing of future Exchange Act reports, the related financial statements and other required securities reporting obligations may result in a default under one or more of the indentures governing our outstanding senior notes and/or under our Credit Agreement, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline."  In addition, we can make no assurance that we will be able to comply with the restrictive and financial covenants contained in our Credit Agreement and senior note indentures in the future. Furthermore, our ability to remain in compliance with the financial and other covenants can be affected by events beyond our control.
Our inability to comply with these covenants could lead to a default or an event of default under the terms of our Credit Agreement or the applicable indentures, for which we may need to seek relief from our lenders and noteholders in order to waive the associated default or event of default and avoid a potential acceleration of the related indebtedness or cross-default or cross-acceleration to other debt. There can be no assurance that we would be able to obtain such relief on commercially reasonable terms or otherwise and we may be required to incur significant additional costs. In addition, the lenders under our Credit Agreement and holders of our senior notes may impose additional operating and financial restrictions on us as a condition to granting any such waiver.
If an event of default is not cured or is not otherwise waived, a majority of lenders in principal amount under our Credit Agreement or the trustee or holders of at least 25% in principal amount of a series of our senior notes may accelerate the maturity of the related debt under these agreements, foreclose upon any collateral securing the debt and terminate any commitments to lend, any of which would have a material adverse effect on our business, financial condition, cash flows and results of operations and would cause the market value of our securities to decline. Furthermore, under these circumstances, we may not have sufficient funds or other resources to satisfy all of our obligations and we may be unable to obtain alternative financing on terms acceptable to us or at all. In such circumstances, we could be forced into bankruptcy or liquidation and, as a result, investors could lose all or a portion of their investment in our securities.
To service our debt, we will be required to generate a significant amount of cash. Our ability to generate cash depends on a number of factors, some of which are beyond our control, and any failure to meet our debt service obligations would have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We have a significant amount of indebtedness. Our ability to satisfy our debt obligations will depend principally upon our future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, may affect our ability to make payments on our debt. If we do not generate sufficient cash flow to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Our inability to generate sufficient cash flow to satisfy our debt service obligations or to refinance our obligations on commercially reasonable terms could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. Certain

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non-guarantor subsidiaries include non-U.S. subsidiaries that may be prohibited by law or other regulations from distributing funds to us and/or we may be subject to payment of taxes and withholdings on such distributions. In the event that we do not receive distributions from our subsidiaries or receive cash via services rendered and intellectual property licensed, we may be unable to make required principal and interest payments on our indebtedness.
We have publicly indicated that it is our intention during 2016 to focus on reducing our outstanding debt levels. As described above, our ability to reduce our indebtedness will depend upon factors including our future operating performance and prevailing economic conditions and financial, business and other factors, many of which are beyond our control. We can provide no assurance of the amount by which we will reduce our debt, if at all.
We have incurred significant indebtedness, which restricts the manner in which we conduct business.
We have incurred significant indebtedness, including in connection with our prior acquisitions. We may incur additional long-term debt and working capital lines of credit to meet future financing needs, subject to certain restrictions and prohibitions under the agreements governing our indebtedness, which would increase our total debt. This additional debt may be substantial and some of this indebtedness may be secured.
Our current indebtedness contains restrictive covenants which impose certain limitations on the way we conduct our business, including limitations on the amount of additional debt we are able to incur, prohibitions on incurring additional debt if certain financial covenants are not met and restrictions on our ability to make certain investments and other restricted payments. Any additional debt, to the extent we are able to incur it, may further restrict the manner in which we conduct business. Such restrictions, prohibitions and limitations could impact our ability to implement elements of our strategy in the following ways:
our ability to obtain additional debt financing on favorable terms or at all could be limited;
there may be instances in which we are unable to meet the financial covenants contained in our debt agreements or to generate cash sufficient to make required payments on our debt, which circumstances may result in the acceleration of the maturity of some or all of our outstanding indebtedness (which we may not have the ability to pay);
there may be instances in which we are unable to meet the financial covenants contained in our debt agreements, at which time we may be prohibited from incurring any additional debt until such covenants are met;
in 2016 and possibly beyond, a substantial portion of our cash flow from operations will be allocated (and, in future years, may be allocated) to service our debt, thus reducing the amount of our cash flow available for other purposes, including operating costs and capital expenditures that could improve our competitive position and results of operations;
we may issue debt or equity securities or sell some of our assets (subject to certain restrictions under our existing indebtedness) to meet payment obligations or to reduce our financial leverage, and we cannot assure you whether such transactions will be on favorable terms;
our flexibility to plan for, or react to, competitive challenges in our business and the pharmaceutical and medical device industries may be compromised;
we may be put at a competitive disadvantage relative to competitors that do not have as much debt as we have, and competitors that may be in a more favorable position to access additional capital resources; and
as further described below, our ability to make acquisitions and execute business development activities through acquisitions will be limited and may, in future years, continue to be limited.
In addition, the April 2016 amendment imposes a number of restrictions on us until the time that we file the First Quarter 2016 Form 10-Q and the Company’s leverage ratio (being the ratio, as of the last day of any fiscal quarter, of Consolidated Total Debt (as defined in the Credit Agreement) as of such day to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) for the four fiscal quarter period ending on such date) is less than 4.50 to 1.00, including (i) imposing a $250 million aggregate cap (the “Transaction Cap”) on acquisitions, subject to certain exceptions, (ii) restricting the incurrence of debt to finance such acquisitions and (iii) requiring the net proceeds from certain asset sales be used to repay the term loans instead of being reinvested in the business.  In addition, our ability to make certain other investments, dividends, distributions, share repurchases and other restricted payments will also be restricted and subject to the Transaction Cap until the First Quarter 2016 Form 10-Q has been filed and the Company’s leverage ratio is less than 4.00 to 1.00. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions.
Our current corporate credit rating is B2 for Moody’s Investors Service (“Moody's”) (which was downgraded from a credit rating of Ba3 on March 16, 2016 and further downgraded from a credit rating of B1 on March 31, 2016) and B for Standard & Poor’s Ratings Services (“Standard & Poor's”) (which was downgraded from a credit rating of BB- on October 30, 2015 and

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further downgraded from a credit rating of B+ on April 14, 2016). Both Moody's and Standard & Poor's have indicated that our corporate credit rating remains under review for potential further downgrade. Any downgrade or further downgrade in our corporate credit ratings or other credit ratings may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.
We are exposed to risks related to interest rates.
Our senior secured credit facilities bear interest based on U.S. dollar London Interbank Offering Rates, or U.S. Prime Rate, or Federal Funds effective rate. Thus, a change in the short-term interest rate environment could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. As of December 31, 2015, we did not have any outstanding interest rate swap contracts.
Tax-related Risks
Our effective tax rates may increase.
We have operations in various countries that have differing tax laws and rates. Our tax reporting is supported by current domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which we operate. Our income tax reporting is subject to audit by domestic and foreign authorities. Our effective tax rate may change from year to year based on changes in the mix of activities and income earned among the different jurisdictions in which we operate; changes in tax laws in these jurisdictions; changes in the tax treaties between various countries in which we operate; changes in our eligibility for benefits under those tax treaties; and changes in the estimated values of deferred tax assets and liabilities. Such changes could result in a substantial increase in the effective tax rate on all or a portion of our income. One potential change in the tax laws relates to the recent proposals of the Organization for Economic Co-operation and Development (“OECD”) respecting base erosion and profit shifting (“BEPS”) and measures designed to prevent these activities, as published in recently released reports from the OECD. These measures could have a significant unfavorable impact on our consolidated income tax rate.
Our provision for income taxes is based on certain estimates and assumptions made by management. Our consolidated income tax rate is affected by the amount of pre-tax income earned in our various operating jurisdictions, the availability of benefits under tax treaties, and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in the ordinary course of business in respect of which the tax treatment is not entirely certain. We therefore make estimates and judgments based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws and tax treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a greater share of income than we will allocate to them. The final outcome of any audits by taxation authorities may differ from the estimates and assumptions that we may use in determining our consolidated tax provisions and accruals. This could result in a material adverse effect on our consolidated income tax provision, financial condition and the net income for the period in which such determinations are made.
Our deferred tax liabilities, deferred tax assets and any related valuation allowances are affected by events and transactions arising in the ordinary course of business, acquisitions of assets and businesses, and non-recurring items. The assessment of the appropriate amount of a valuation allowance against the deferred tax assets is dependent upon several factors, including estimates of the realization of deferred income tax assets, which realization will be primarily based on future taxable income, including the reversal of existing taxable temporary differences. Significant judgment is applied to determine the appropriate amount of valuation allowance to record. Changes in the amount of any valuation allowance required could materially increase or decrease our provision for income taxes in a given period.
Risks relating to Our Shift in Business Strategy
We may sell assets, which could adversely affect our business, prospects and opportunities for growth.
We may, from time to time, divest or otherwise dispose of assets, products or businesses that we deem not to fit with our strategic plan, that are not achieving the desired return on investment or that we believe present an attractive or desirable opportunity to monetize or to reduce our outstanding debt levels. These transactions pose risks and challenges that could negatively impact our business. For example, we may be unable to dispose of a business or assets on satisfactory or commercially reasonable terms within our anticipated timeframe. We may also sell certain assets, products or businesses at a loss and recognize a loss on sale in connection with such divestitures. We may also suffer adverse tax consequences as a result of such divestitures, including capital gains tax. In addition, any such divestiture could reduce the size or scope of our business, our market share in particular markets, our opportunities with respect to certain markets, products or therapeutic categories or our ability to compete in certain markets and therapeutic categories. Furthermore, until we have filed our First Quarter 2016 Form 10-Q and have achieved the applicable specified leverage ratio, we will be required to use the net proceeds from certain asset sales to repay the term loans under the Credit Agreement and, as a result, will not be able to invest such proceeds into our business. Refer to Note 26 titled "SUBSEQUENT

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EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions. As a result of these factors, any divestiture could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Historically, a significant part of our business strategy has been business development through acquisitions. However, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond and this could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
A significant part of our business strategy has historically been the acquisition of companies, businesses and products. However, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt levels.  In addition, as a result of the recent amendment to our Credit Agreement, we are prohibited from making acquisitions, subject to certain exceptions, in excess of the aggregate Transaction Cap, until we file our First Quarter 2016 Form 10-Q and our leverage ratio (the ratio, as of the last day of any fiscal quarter, of Consolidated Total Debt (as defined in the Credit Agreement) as of such day to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) for the four fiscal quarter period ending on such date) is less than 4.50 to 1.00. In addition, during this period, we will also be restricted from incurring debt to finance such acquisitions. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions. Furthermore, while we anticipate business development through acquisitions may be a component of our long-term strategy, we cannot predict if or when we will shift our focus back to more significant business development activities through acquisitions.
We are unable to determine what the impact may be on our Company as a result of this shift in focus away from business development through acquisitions and the restrictions on making acquisitions imposed on us by our Credit Agreement, which could have a material adverse effect on our business, financial condition, cash flows and results of operations, and could cause the market value of our common shares and/or debt securities to decline.
We have made commitments and public statements with respect to the cessation of or limitation on pricing increases for certain of our products. Our decision to cease or limit price increases or to reduce prices could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are assessing our practices related to pricing and considering certain changes thereto. For example, in conjunction with our fulfillment arrangements with Walgreens, we announced that we would reduce prices of certain products within our branded prescription-based dermatology and ophthalmology businesses, by, on average, ten percent, which reduced pricing will apply to the wholesale list prices of these products and will be phased in over six to nine months following the launch of the program (such launch occurred in January 2016). We have also made public statements about our intentions to cease or limit pricing increases on certain of our products in 2016. At this time, we cannot predict what other changes we will make to our business practices, including with respect to pricing (such as imposing limits or prohibitions on the amount of pricing increases we may take on certain of our products) or the current prices of our products (such as taking retroactive or future price reductions) nor can we predict the impact such pricing changes will or would have on our business. However, any such changes to our business practices, including with respect to pricing, or existing prices could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. For example, by limiting or eliminating price increases on certain of our products, this will result in fewer or lower price appreciation credits from certain of our wholesalers. Price appreciation credits are generated when we increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we are entitled to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers. Such credits, which can be significant, are used to offset against the total distribution service fees we pay on all of our products to each wholesaler. As a result, to the extent we decide to cease or limit price increases, we will have fewer or lower price appreciation credits to use to offset against our distribution fees owing to these wholesalers. In addition, under certain of our agreements with our wholesaler customers, we have price protection or price depreciation provisions, pursuant to which we have agreed to adjust the value of any on-hand or in-transit inventory with such customers in the event we reduce the price of any of our products. As a result, to the extent we reduce the WAC price for any of our products, we may owe a payment to such customers (or such customers may earn a credit to be offset against any amounts owing to us) equal to the amount of such inventory multiplied by the difference between the price at which they acquired the product inventory and the new reduced price.
Given recent and expected changes to our management and Board of Directors and the implementation of the remediation measures designed to address the material weaknesses identified in our internal control over financial reporting, there may be changes in the way we conduct our business and/or our business strategy and these changes could have a material adverse

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effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We recently announced that our current chief executive officer, J. Michael Pearson, will be leaving the Company and that Joseph C. Papa will become our new Chairman and Chief Executive Officer. With the appointment of our new chairman and chief executive officer, other changes to management may occur. There have also been recent changes to the composition of our Board of Directors. In addition, certain remediation measures have been recommended to us and we are in the process of implementing them. As a result of these changes to our management and Board of Directors and these ongoing remediation measures, we may experience changes in the way we conduct our business, as well as potential changes to our business strategy. Some of these changes may be significant. For example, we have already announced certain changes to our pricing practices. Other changes may include changes in our distribution practices in the U.S. and internationally, such as reductions in wholesaler inventory levels. For example, during 2016, our goal is to bring our wholesaler inventory levels in Russia and Poland below three months on hand, in-line with our targeted levels for such markets.
We cannot predict what these changes to our business practices and strategy may involve or the timing of any such changes and how they will impact our product sales, revenue, business, financial condition, cash flows or results of operation, but any such changes could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Competitive and Operational Risks
We operate in extremely competitive industries. If competitors develop or acquire more effective or less costly pharmaceutical products or medical devices for our target indications, it could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The pharmaceutical and medical device industries are extremely competitive. Our success and future growth depend, in part, on our ability to acquire, license or develop products that are more effective than those of our competitors or that incorporate the latest technologies and our ability to effectively manufacture and market those products. Many of our competitors, particularly larger pharmaceutical and medical device 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 or acquiring products and technologies that are more effective, more advanced or less costly than those currently marketed or proposed for development by us. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products and may also establish exclusive collaborative or licensing relationships with our competitors. These competitors and the introduction of competing products (that may be more effective or less costly than our products) could make our products less competitive or obsolete, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In prior years, we have grown at a very rapid pace. Our inability to properly manage or support this growth could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We have grown very rapidly over the past few years as a result of our acquisitions. This growth has put significant demands on our processes, systems and employees. We have made and expect to make further investments in additional personnel, systems and internal control processes to help manage this growth. If we are unable to successfully manage and support this rapid growth, and the challenges and difficulties associated with managing a larger, more complex business, this could cause a material adverse effect on our business, financial condition, cash flows and results of operations, and could cause the market value of our common shares and/or debt securities to decline.
Products representing a significant amount of our revenue are not protected by patent or data exclusivity rights or are nearing the end of their exclusivity period. In addition, we have faced generic competition in the past and expect to face additional generic competition in the future. Competitors (including generic and biosimilar competitors) of our products could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
A significant number of the products we sell have no meaningful exclusivity protection via patent or data exclusivity rights or are protected by patents or regulatory exclusivity periods that will be expiring in the near future. These products represent a significant amount of our revenues (See Item 1 “Business-Competition-Generic Competition” in this Form 10-K for a list of some of these products). Without exclusivity protection, competitors (including generics and biosimilars) face fewer barriers in introducing competing products. Upon the expiration or loss of patent exclusivity or market exclusivity for our products or otherwise upon the introduction of generic, biosimilar or other competitors (which may be sold at significantly lower prices than our products),

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we could lose a significant portion of sales and market share of that product in a very short period. In addition, the introduction of generic and biosimilar competitors may have a significant downward pressure on the pricing of our branded products which compete with such generics and biosimilars. The introduction of competing products (including generic products and biosimilars) could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Commercialization Risks
Our approved products may not achieve or maintain expected levels of market acceptance.
Even if we are able to obtain and maintain regulatory approvals for our pharmaceutical and medical device products, generic or branded, the success of these products is dependent upon achieving and maintaining market acceptance. Launching and commercializing products is time consuming, expensive and unpredictable. The commercial launch of a product takes significant time, resources, personnel and expertise, which we may not have in sufficient levels to achieve success, and is subject to various market conditions, some of which may be beyond our control. There can be no assurance that we will be able to, either by ourselves or in collaboration with our partners or through our licensees or distributors, successfully launch and commercialize new products or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the market or may have only limited or no commercial success. While we have been successful in launching some of our products, such as Jublia® in the U.S., we may not achieve the same level of success with respect to all of our new products, especially where such product is in a new therapeutic area (as is the case with our new women’s health product, Addyi®). Our inability to successfully launch our new products may negatively impact the commercial success of such product, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. Our inability to successfully launch our new products could also lead to material impairment charges, as could be the case with Addyi®.
Levels of market acceptance for our new products (such as Addyi®) could be impacted by several factors, some of which are not within our control, including but not limited to the:
safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;
scope of approved uses and marketing approval;
availability of patent or regulatory exclusivity;
timing of market approvals and market entry;
ongoing regulatory obligations following approval, such as the requirement to conduct a Risk Evaluation and Mitigation Strategy (REMS) programs;
any restrictions or “black box” warnings required on the labeling of such products:
availability of alternative products from our competitors;
acceptance of the price of our products;
effectiveness of our sales forces and promotional efforts;
the level of reimbursement of our products;
acceptance of our products on government and private formularies;
ability to market our products effectively at the retail level or in the appropriate setting of care; and
the reputation of our products.
Further, the market perception and reputation of our products and their safety and efficacy are important to our business and the continued acceptance of our products. Any negative publicity about our products, such as the discovery of safety issues with our products, adverse events involving our products, or even public rumors about such events, could have a material adverse effect on our business, financial condition, cash flows or results of operation or could cause the market value of our common shares and/or debt securities to decline. In addition, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products or the withdrawal or recall of such similar products could have a material adverse effect on sales of our products. Accordingly, new data about our products, or products similar to our products, could cause us reputational harm and could negatively impact demand for our products due to real or perceived side effects or uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal.

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If our products fail to gain, or lose, market acceptance, our revenues would be adversely impacted and we may be required to take material impairment charges, all of which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our new arrangements with Walgreens may not be successful.
In December 2015, we announced new fulfillment arrangements with Walgreens, which included a brand fulfillment agreement, pursuant to which we have made certain of our dermatology products (including Jublia®, Luzu®, Solodyn®, Retin-A Micro® Gel 0.08%, Onexton® and Acanya® Gel), certain of our ophthalmology products (including Besivance®, Lotemax®, Alrex®, Prolensa®, Bepreve®, and Zylet®) and Addyi® available to eligible patients through a patient access and co-pay program available at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies. We also entered into a separate agreement respecting generic fulfillment, which we plan to make available through Walgreens retail pharmacies in the second half of 2016. We cannot predict whether these arrangements with Walgreens will be successful, whether these arrangements will result in full recovery from the market disruption caused by the termination of our former relationship with Philidor, nor can we predict how the market, including customers, doctors, patients, pharmacy benefit managers and third party payors, or governmental agencies, will react to these arrangements and programs. If these arrangements or programs fail, if they do not achieve sufficient success and market acceptance, if we face retaliation from third parties as a result of these arrangements and programs (for example, in the form of limitations on or exclusions from the reimbursement of our products) or if any part of these arrangements is found to be non-compliant with applicable law or regulations, this could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In addition, in conjunction with our fulfillment arrangements with Walgreens, we announced that we would reduce prices of certain products within our branded prescription-based dermatology and ophthalmology businesses, by, on average, ten percent, which reduced pricing will apply to the wholesale list prices of these products and will be phased in over six to nine months following the launch of the program (which launch occurred in January 2016). While we anticipate that the impact of the increased volume resulting from such price reductions will offset or exceed the impact of lower prices, we cannot guarantee that the benefit from increased volume will outweigh the impact of lower prices.
For certain of our products, we depend on reimbursement from governmental and other third party payors and a reduction in reimbursement could reduce our product sales and revenue. In addition, failure to be included in formularies developed by managed care organizations and coverage by other organizations may negatively impact the utilization of our products, which could harm our market share and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Sales of certain of our products are dependent, in part, on the availability and extent of reimbursement from government health administration authorities, private health insurers, pharmacy benefit managers and other organizations of the costs of our products and the continued reimbursement and coverage of our products in such programs. Changes in government regulations or private third party payors’ reimbursement policies may reduce reimbursement for our products. In addition, such third party payors may otherwise make the decision to reduce reimbursement of some or all our products or fail to cover some or all our products in such programs or assert that reimbursements were not in accordance with applicable requirements. Any reduction or elimination of such reimbursement or coverage could result in a negative impact on the utilization of our products and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Managed care organizations and other third party payors try to negotiate the pricing of medical services and products to control their costs. Managed care organizations and pharmacy benefit managers typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower costs, generic products are often favored. The breadth of the products covered by formularies varies considerably from one managed care organization to another, and many formularies include alternative and competitive products for treatment of particular medical conditions. Failure to be included in such formularies or to achieve favorable formulary status may negatively impact the utilization and market share of our products. If our products are not included within an adequate number of formularies or adequate reimbursement levels are not provided, or if those policies increasingly favor generic products, this could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We may experience declines in sales volumes or prices of certain of our products as the result of the concentration of sales to wholesalers and the continuing trend towards consolidation of such wholesalers and other customer groups and this could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
For certain of our products, a significant portion of our sales are to a relatively small number of customers. If our relationship with one or more of such customers is disrupted or changes adversely or if one or more of such customers experience financial

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difficulty or other material adverse changes in their businesses, it could materially and adversely affect our sales and financial results, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In addition, wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. The result of these developments could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Risks related to Intellectual Property
The Company may fail to obtain, maintain, license, enforce or defend the intellectual property rights required to conduct its business, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We strive to acquire, maintain and defend patent, trademark and other intellectual property protections over our products and the processes used to manufacture these products. However, we may not be successful in obtaining such protections, or the patent, trademark and intellectual property rights we do obtain may not be sufficient in breadth and scope to fully protect our products or prevent competing products, or such patent and intellectual property rights may be susceptible to third party challenges. The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to manufacture and sell products that compete with our products or may impact our ability to develop, manufacture and market our own products, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
For certain of our products and manufacturing processes, we rely on trade secrets and other proprietary information, which we seek to protect, in part, by confidentiality and nondisclosure agreements with our employees, consultants, advisors and partners. We also attempt to enter into agreements whereby such employees, consultants, advisors and partners assign to us the rights in any intellectual property they develop. These agreements may not effectively prevent disclosure of such information and disputes may still arise with respect to the ownership of intellectual property. The disclosure of such proprietary information or the loss of such intellectual property rights may impact our ability to develop, manufacture and market our own products or may assist competitors in the development, manufacture and sale of competing products, which could have a material adverse effect on our revenues, financial condition, cash flows or results of operations and could cause the market value of our common shares and/or debt securities to decline.
We have incurred and will continue to incur substantial costs and resources in applying for and prosecuting these patent, trademark and other intellectual property rights and in defending or litigating these rights against third parties.
For a number of our commercialized products and pipeline products, including Xifaxan®, Jublia® and Relistor®, we rely on licenses to patents and other technologies, know-how and proprietary rights held by third parties. Any loss, expiration, termination or suspension of our rights to such licensed intellectual property would result in our inability to continue to develop, manufacture and market our products or product candidates and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In the future, we may also need to obtain such licenses from third parties to develop, manufacture, market or continue to manufacture or market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to develop, manufacture and market our products may be inhibited or prevented, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Risks related to the International Scope of our Business
Our business, financial condition, cash flows 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 U.S. and Canada and may, in the future, expand our operations into new countries, including emerging markets (such as in connection with our recent acquisition of Amoun in Egypt and our expansion in other regions). We sell our pharmaceutical and medical device products in many countries around the world. All of our foreign operations are subject to risks inherent in conducting business abroad, including, among other things:
difficulties in coordinating and managing foreign operations, including ensuring that foreign operations comply with foreign laws as well as Canadian and U.S. laws applicable to Canadian companies with U.S. and foreign operations, such as export laws and the U.S. Foreign Corrupt Practices Act ("FCPA"), and other applicable worldwide anti-bribery laws;

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price and currency exchange controls;
restrictions on the repatriation of funds;
scarcity of hard currency, including the U.S. dollar, such as is the case currently in Egypt, which may require a transfer or loan of funds to the operations in such countries, which they may not be able to repay on a timely basis;
political and economic instability;
compliance with multiple regulatory regimes;
less established legal and regulatory regimes in certain jurisdictions, including as relates to enforcement of anti-bribery and anti-corruption laws and the reliability of the judicial systems;
differing degrees of protection for intellectual property;
unexpected changes in foreign regulatory requirements, including quality standards and other certification requirements;
new export license requirements;
adverse changes in tariff and trade protection measures;
differing labor regulations;
potentially negative consequences from changes in or interpretations of tax laws;
restrictive governmental actions;
possible nationalization or expropriation;
credit market uncertainty;
differing local practices, customs and cultures, some of which may not align or comply with our Company practices and policies or U.S. laws and regulations;
difficulties with licensees, contract counterparties, or other commercial partners; and
differing local product preferences and product requirements.
Any of these factors, or any other international factors, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Similarly, adverse economic conditions impacting our customers in these countries or uncertainty about global economic conditions could cause purchases of our products to decline, which would adversely affect our revenues and operating results. Moreover, our projected revenues and operating results are based on assumptions concerning certain levels of customer spending. Any failure to attain our projected revenues and operating results as a result of adverse economic or market conditions could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Due to the large portion of our business conducted in currency other than U.S. dollars, we have significant foreign currency risk.
We face foreign currency exposure on the translation into U.S. dollars of the financial results of our operations in Europe, Canada, Australia, Latin America, Asia, Africa and the Middle East, including, for example, as a result of the recent strengthening of the U.S. dollar against other foreign currencies that occurred in 2015. Where possible, we manage foreign currency risk by managing same currency revenue in relation to same currency expenses. We face foreign currency exposure in those countries where we have revenue denominated in the local foreign currency and expenses denominated in other currencies. Both favorable and unfavorable foreign currency impacts to our foreign currency-denominated operating expenses are mitigated to a certain extent by the natural, opposite impact on our foreign currency-denominated revenue. In addition, the repurchase of principal under our U.S. dollar denominated debt may result in foreign exchange gains or losses for Canadian income tax purposes. One half of any foreign exchange gains or losses will be included in our Canadian taxable income. Any foreign exchange gain will result in a corresponding reduction in our available Canadian tax attributes.
Risks relating to Our Acquisitions

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To the extent we resume business development activities through acquisitions, we may be unable to identify, acquire, close or integrate acquisition targets successfully.
Part of our historic business strategy has included acquiring and integrating complementary businesses, products, technologies or other assets, and forming strategic alliances, joint ventures and other business combinations, to help drive future growth. We have also historically in-licensed new products or compounds. As we have indicated, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond. However, we anticipate that business development through acquisitions may continue to be a component of our long-term strategy. In that respect, once the additional limitations imposed by the Credit Agreement are no longer applicable following the filing of our First Quarter 2016 Form10-Q and the achievement of a specified leverage ratio and we have reduced our debt to a desired level, we may resume business development activities through acquisitions, although we cannot guarantee or predict the timing or level of such business development activity.
Acquisitions or similar arrangements may be complex, time consuming and expensive. In some cases, we may move very rapidly to negotiate and consummate the transaction, once we identify the acquisition target. We may not consummate some negotiations for acquisitions or other arrangements, which could result in significant diversion of management and other employee time, as well as substantial out-of-pocket costs. In addition, there are a number of risks and uncertainties relating to closing transactions. If such transactions are not completed for any reason, we will be subject to several risks, including the following: (i) the market price of our common shares may reflect a market assumption that such transactions will occur, and a failure to complete such transactions could result in a negative perception by the market of us generally and a decline in the market price of our common shares; and (ii) many costs relating to the such transactions may be payable by us whether or not such transactions are completed.
If an acquisition is consummated, the integration of the acquired business, product or other assets into our Company may also be complex and time-consuming and, if such businesses, products and assets are not successfully integrated, we may not achieve the anticipated benefits, cost-savings or growth opportunities. Potential difficulties that may be encountered in the integration process include the following: integrating and retaining personnel, operations and systems, while maintaining focus on selling and promoting existing and newly-acquired products; coordinating geographically dispersed organizations; distracting management and employees from operations; retaining existing customers and attracting new customers; maintaining the business relationships the acquired company has established, including with healthcare providers; addressing regulatory concerns of the newly-acquired business; and managing inefficiencies associated with integrating the operations of the Company.
Furthermore, we have incurred, and may incur in the future, restructuring and integration costs and a number of non-recurring transaction costs associated with these acquisitions, combining the operations of the Company and the acquired company and achieving desired synergies. These fees and costs may be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of the Company and the acquired company. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the acquired business, will offset the incremental transaction-related costs over time. Therefore, any net benefit may not be achieved in the near term, the long term or at all.
These acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy as anticipated. We may also fail to achieve the anticipated benefits and successes of such acquisitions, including the achievement of any expected revenue growth resulting from such acquisitions (for example, the anticipated revenue growth we expect in connection with the Xifaxan® product (including the recently-approved IBS-D indication), which product we acquired as part of the Salix Acquisition or the anticipated revenue we expect in connection with the Addyi® product we acquired in the acquisition of Sprout Pharmaceuticals, Inc.). In addition, these acquisitions may expose us to increased competition or challenges with respect to our products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology or other asset or arrangement. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisition or arrangement after we have expended resources on them. For example, certain of the acquisition agreements by which we have acquired companies, businesses, products, technologies or other assets require the former owners to indemnify us against certain past liabilities. However, these indemnification provisions may not protect us fully or at all from the liabilities we may face following the closing of such acquisitions, because either the liability of the former owners may be limited or capped or such former owners may not meet their indemnification responsibilities should any liabilities arise.
Development and Regulatory Risks
The successful development of our pipeline products is highly uncertain and requires significant expenditures and time. In addition, obtaining necessary government approvals is time-consuming and not assured. The failure to commercialize certain of our pipeline products could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.

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We currently have a number of pipeline products in development. We and our development partners, as applicable, conduct extensive preclinical studies and clinical trials to demonstrate the safety and efficacy in humans of our pipeline products in order to obtain regulatory approval for the sale of our pipeline products. Preclinical studies and clinical trials are expensive, complex, can take many years and have uncertain outcomes. None of, or only a small number of, our research and development programs may actually result in the commercialization of a product. We will not be able to commercialize our pipeline products if preclinical studies do not produce successful results or if clinical trials do not demonstrate safety and efficacy in humans. Furthermore, success in preclinical studies or early-stage clinical trials does not ensure that later stage clinical trials will be successful nor does it ensure that regulatory approval for the product candidate will be obtained. In addition, the process for the completion of pre-clinical and clinical trials is lengthy and may be subject to a number of delays for various reasons, which would delay the commercialization of any successful product. If our development projects are not successful or are significantly delayed, we may not recover our substantial investments in the pipeline product and our failure to bring these pipeline products to market on a timely basis, or at all, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In addition, FDA and Health Canada approval must be obtained in the U.S. and Canada, respectively, EMA approval (drugs) and CE Marking (devices) must be obtained in countries in the EU and similar approvals must be obtained from comparable agencies in other countries, prior to marketing or manufacturing new pharmaceutical and medical device products for use by humans. Obtaining such regulatory approvals for new products and devices and manufacturing processes can take a number of years and involves the expenditure of substantial resources. Even if such products appear promising in development stages, regulatory approval may not be achieved and no assurance can be given that we will obtain approval in those countries where we wish to commercialize such products. Nor can any assurance be given that if such approval is secured, the approved labeling will not have significant labeling limitations, including limitations on the indications for which we can market a product, or require onerous risk management programs. Furthermore, from time to time, changes to the applicable legislation or regulations may be introduced that change these review and approval processes for our products, which changes may make it more difficult and costly to obtain or maintain regulatory approvals.
Our marketed drugs will be subject to ongoing regulatory review.
Following initial regulatory approval of any products, we or our partners may develop or acquire, we will be subject to continuing regulatory review by various government authorities in those countries where our products are marketed or intended to be marketed, including the review of adverse drug events and clinical results that are reported after product candidates become commercially available. In addition, we are subject to ongoing audits and investigations of our facilities and products by the FDA, as well as other regulatory agencies in and outside the U.S. If we fail to comply with the regulatory requirements in those countries where our products are sold, we could lose our marketing approvals or be subject to fines or other sanctions. Also, as a condition to granting marketing approval of a product, the applicable regulatory agencies may require a company to conduct additional clinical trials, the results of which could result in the subsequent loss of marketing approval, changes in product labeling or new or increased concerns about side effects or efficacy of a product.
In addition, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in additional regulatory controls or restrictions, or even lead to the regulatory authority requiring us to withdraw the product from the market. Further, if faced with these incidents of adverse drug reactions, unintended side effects or misuse relating to our products, we may elect to voluntarily implement a recall or market withdrawal of our product. A recall or market withdrawal, whether voluntary or required by a regulatory authority, may involve significant costs to us, potential disruptions in the supply of our products to our customers and reputational harm to our products and business, all of which could harm our ability to market our products and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Manufacturing and Supply Risks
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 interruption of the manufacture of our products could adversely affect our business. Other manufacturing and supply difficulties or delays may also have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance with current good manufacturing practices (“cGMP”), quality system management requirements or similar standards before approval for marketing. While we attempt to build in certain contractual obligations on such third party manufacturers, we may not be able to ensure that such third parties comply with these obligations. Our failure or that of our contract manufacturers to comply with cGMP regulations, quality system management requirements or similar regulations outside of the U.S. could result in enforcement action by the FDA or its foreign counterparts, including, but not limited to, warning letters, fines, injunctions, civil

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or criminal penalties, recall or seizure of products, total or partial suspension of production or importation, suspension or withdrawal of regulatory approval for approved or in-market products, refusal of the government to renew marketing applications or approve pending applications or supplements, suspension of ongoing clinical trials, imposition of new manufacturing requirements, closure of facilities and criminal prosecution. These enforcement actions could lead to a delay or suspension in production.
In addition, our manufacturing and other processes use complicated and sophisticated equipment, which sometimes requires a significant amount of time to obtain and install. Manufacturing complexity, testing requirements and safety and security processes combine to increase the overall difficulty of manufacturing these products and resolving manufacturing problems that we may encounter. Although we endeavor to properly maintain our equipment (and require our contract manufacturers to properly maintain their equipment), including through on-site quality control and experienced manufacturing supervision, and have key spare parts on hand, our business could suffer if certain manufacturing or other equipment, or all or a portion of our or their facilities, were to become inoperable for a period of time. We could experience substantial production delays or inventory shortages in the event of any such occurrence until we or they repair such equipment or facility or we or they build or locate replacement equipment or a replacement facility, as applicable, and seek to obtain necessary regulatory approvals for such replacement. Any interruption in our manufacture of products could adversely affect the sales of our current products or introduction of new products and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The supply of our products to our customers (or, in some case, supply from our contract manufacturers to us) is subject to and dependent upon the use of transportation services. Disruption of transportation services (including as a result of weather conditions) could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In addition, any prolonged disruption in the operations of our existing distribution facilities, whether due to technical, labor or other difficulties, weather conditions, equipment malfunction, contamination, failure to follow specific protocols and procedures, destruction of or damage to any facility or other reasons, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
For some of our finished products and raw materials, we obtain supply from one or a limited number of sources. If we are unable to obtain components or raw materials, or products supplied by third parties, our ability to manufacture and deliver our products to the market would be impeded, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Some components and raw materials used in our manufactured products, and some finished products sold by us, are currently available only from one or a limited number of domestic or foreign suppliers. In the event an existing supplier fails to supply product on a timely basis and/or in the requested amount, supplies product that fails to meet regulatory requirements, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or we are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we may be unable to obtain the required components, raw materials or products on a timely basis or at commercially reasonable prices. We attempt to mitigate these risks by maintaining safety stock of these products, but such safety stock may not be sufficient. In addition, in some cases, only a single source of active pharmaceutical ingredient is identified in filings with regulatory agencies, including the FDA, and cannot be changed without prior regulatory approval, which would involve time and expense to us. A prolonged interruption in the supply of a single-sourced raw material, including the active pharmaceutical ingredient, or single-sourced finished product could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In addition, these third party manufacturers may have the ability to increase the supply price payable by us for the manufacture and supply of our products, in some cases without our consent.
As a result, our dependence upon others to manufacture our products may adversely affect our profit margins and our ability to obtain approval for and produce our products on a timely and competitive basis, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Risks related to Specific Legislation and Regulations
We are subject to various laws and regulations, including “fraud and abuse” laws, anti-bribery laws, environmental laws and privacy and security regulations, and a failure to comply with such laws and regulations or prevail in any litigation related to noncompliance could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Pharmaceutical and medical device 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 (“AKS”) and other state and

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federal laws and regulations. The AKS prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical or medical device manufacturers, on the one hand, and prescribers, purchasers, formulary managers and other health care related professionals, on the other hand. More generally, the federal False Claims Act, among other things, prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government. Pharmaceutical and medical device companies have been prosecuted or faced civil liability under these laws for a variety of alleged promotional and marketing activities, including engaging in off-label promotion that caused claims to be submitted for non-covered off-label uses.
We also face increasingly strict data privacy and security laws in the U.S. and in other countries, the violation of which could result in fines and other sanctions. The U.S. Department of Health and Human Services Office of Inspector General recommends, and increasingly states require pharmaceutical companies to have comprehensive compliance programs. In addition, the Physician Payment Sunshine Act enacted in 2010 imposes reporting and disclosure requirements on device and drug manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. Failure to submit this required information may result in significant civil monetary penalties. While we have developed corporate compliance programs based on what we believe to be current best practices, we cannot assure you that we or our employees or agents are or will be in compliance with all applicable federal, state or foreign regulations and laws. If we are in violation of any of these requirements or 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 criminal and civil fines and penalties, exclusion from federal healthcare programs or other sanctions.
The U.S. FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the U.S. and Canada. We cannot assure you that our internal control policies and procedures will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in criminal or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, hazardous substances may be released into the environment, which could cause environmental or property damage or personal injuries, and which could subject us to remediation obligations regarding contaminated soil and groundwater or potential liability for damage claims. Under certain laws, we may be required to remediate contamination at certain of our properties regardless of whether the contamination was caused by us or by previous occupants of the property or by others. In recent years, the operations of all companies have become subject to increasingly stringent legislation and regulation related to occupational safety and health, product registration and environmental protection. Such legislation and regulations are complex and constantly changing, and future changes in laws or regulations may require us to install additional controls for certain of our emission sources, to undertake changes in our manufacturing processes or to remediate soil or groundwater contamination at facilities where such cleanup is not currently required.
We are also subject to various privacy and security regulations, including but not limited to HIPAA. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions (e.g., health care claims information and plan eligibility, referral certification and authorization, claims status, plan enrollment, coordination of benefits and related information), as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. Failure to comply with these laws can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws and the potential liability associated with the failure to comply with these laws could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are also subject to U.S. federal laws regarding reporting and payment obligations with respect to our participation in federal health care programs, including Medicare and Medicaid. Because our processes for calculating applicable government prices and the judgments involved in making these calculations involve subjective decisions and complex methodologies, these calculations are subject to risk of errors and differing interpretations. In addition, they are subject to review and challenge by the

29



applicable governmental agencies, and it is possible that such reviews could result in changes that could have material adverse legal, regulatory, or economic consequences.
Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact our ability to sell our products profitably. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) may affect the operational results of companies in the pharmaceutical and medical device industries, including the Company and other healthcare related industries, by imposing on them additional costs. Effective January 1, 2010, the Health Care Reform Act increased the minimum Medicaid drug rebates for pharmaceutical companies, expanded the 340B drug discount program, and made changes to affect the Medicare Part D coverage gap, or "donut hole". The law also revised the definition of "average manufacturer price" for reporting purposes, which may affect the amount of our Medicaid drug rebates to states.  Beginning in 2011, the law imposed a significant annual fee on companies that manufacture or import branded prescription drug products. Finally, the law imposed an annual tax on manufacturers of certain medical devices. As a part of the Consolidated Appropriations Act of 2016 signed by President Obama on December 18, 2015, a 2-year moratorium has been placed on the payment of the Medical Device Excise Tax (MDET) for the period January 1, 2016 to December 31, 2017.
The Health Care Reform Act and further changes to health care laws or regulatory framework that reduce our revenues or increase our costs could also have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Other Risks
Our operating results and financial condition may fluctuate.
Our operating results and financial condition may fluctuate from quarter to quarter for a number of reasons. In addition, our stock price is volatile. The following events or occurrences, among others, could cause fluctuations in our financial performance and/or stock price from period to period:
development and launch of new competitive products;
the timing and receipt of FDA approvals or lack of approvals;
costs related to business development transactions;
changes in the amount we spend to promote our products;
delays between our expenditures to acquire new products, technologies or businesses and the generation of revenues from those acquired products, technologies or businesses;
changes in treatment practices of physicians that currently prescribe certain of our products;
increases in the cost of raw materials used to manufacture our products;
manufacturing and supply interruptions;
our responses to price competition;
expenditures as a result of legal actions (and settlements thereof), including the defense of our patents and other intellectual property;
market acceptance of our products;
the timing of wholesaler and distributor purchases;
general economic and industry conditions, including potential fluctuations in interest rates;
changes in seasonality of demand for certain of our products;
foreign currency exchange rate fluctuations;
changes to, or the confidence in, our business strategy;

30



changes to, or the confidence in, our management; and
expectations for future growth.
As a result, we believe that quarter-to-quarter comparisons of results from operations, or any other similar period-to-period comparisons, should not be construed as reliable indicators of our future performance. In any quarterly period, our results may be below the expectations of market analysts and investors, which could cause the market value of our common shares and/or debt securities to decline.
We have significant goodwill and other intangible assets and potential impairment of goodwill and other intangibles may have a significant adverse impact on our profitability.
Goodwill and intangible assets represent a significant portion of our total assets. Finite-lived intangible assets are subject to an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. If an impairment exists, we would be required to take an impairment charge with respect to the impaired asset. Events giving rise to impairment are difficult to predict, including the uncertainties associated with the launch of new products (such as our recently launched Addyi® product), and are an inherent risk in the pharmaceutical and medical device industries. As a result of the significance of goodwill and intangible assets, our financial condition and results of operations in a future period could be negatively impacted should such an impairment of goodwill or intangible assets occur, which could cause the market value of our common shares and/or debt securities to decline. For example, if an impairment were to occur with respect to our recently launched Addyi® product, the resulting impairment charge could have a material negative impact on our financial condition and results of operations.
We have become increasingly dependent on information technology and any breakdown, interruption or breach of our information technology systems could subject us to liability or interrupt the operation of our business, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are increasingly dependent upon sophisticated information technology systems and infrastructure in connection with the conduct of our business. We must constantly update our information technology infrastructure and we cannot assure you that our various current information technology systems throughout the organization will continue to meet our current and future business needs. Furthermore, modification, upgrade or replacement of such systems may be costly. In addition, due to the size and complexity of these systems, any breakdown, interruption, corruption or unauthorized access to or cyber-attack on these systems could create system disruptions, shutdowns or unauthorized disclosure of confidential information. While we attempt to take appropriate security and cyber-security measures to protect our data and information technology systems and to prevent such breakdowns and unauthorized breaches and cyber-attacks, we cannot guarantee that these measures will be successful and that these breakdowns and breaches in, or attacks on, our systems and data will be prevented. Such breakdowns, breaches or attacks may cause business interruption and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline, and we may suffer financial damage or other loss, including fines or criminal penalties because of lost or misappropriated information.
Our business may be impacted by seasonality and other trends, which may cause our operating results and financial condition to fluctuate.
Demand for certain of our products may be impacted by seasonality and other trends. Historically, revenues from our business tend to be weighted toward the second half of the year.  Sales in the first quarter tend to be lower as patient co-pays and deductibles reset at the beginning of each year.  Further, the third quarter “back to school” period favorably impacts demand for certain of our dermatology products.  Sales in the fourth quarter tend to be higher based on consumer and customer purchasing patterns associated with healthcare reimbursement programs.  However, there are no assurances that these historical trends will continue in the future. In addition, we expect the weighting of revenues toward the second half of the year to be more pronounced in 2016, given the transition of certain of our products under the fulfillment arrangements with Walgreens described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.  Seasonality and other trends may cause our operating results to fluctuate.
We have entered into distribution agreements with other companies to distribute certain of our products at supply prices based on net sales. Declines in the pricing and/or volume, over which we have no or limited control, of such products, and therefore the amounts paid to us, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Certain of our products are the subject of third party distribution agreements, pursuant to which we manufacture and sell products to other companies, which distribute such products at a supply price, typically based on net sales. Our ability to control

31



pricing and volume of these products may be limited and, in some cases, these companies make all distribution and pricing decisions independently of us. If the pricing or volume of such products declines, our revenues would be adversely impacted which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The illegal distribution and sale of counterfeit versions of our products may reduce demand for our products or have a negative impact on the reputation of our products, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Third parties may illegally distribute and sell counterfeit versions of our products, which do not meet or adhere to the rigorous quality, safety, manufacturing, storage and handling standards and regulations that apply to our products. The discovery of safety or efficacy issues, adverse events or even death or personal injury associated with or caused by counterfeit products may be attributed to our products and may cause reputational harm to our products or the Company. We may not be able to detect or, if detected, prevent or prohibit the sale of such counterfeit products. As a result, the illegal sale or distribution of counterfeit products may negatively impact the demand for and sales of our products, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our revenues and profits could be reduced by imports from countries where our products are available at lower prices.
Prices for our products are based on local market economics and competition and differ from country to country. Our sales in countries with relatively higher prices may be reduced if products can be imported into those or other countries from lower price markets. If this happens with our products, our revenues and profits may be adversely affected, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our policies regarding returns, allowances and chargebacks, and marketing programs adopted by wholesalers, may reduce our revenues in future fiscal periods.
We provide certain rebates, allowances, chargebacks and other credits to our customers with respect to certain of our products. For example, we make payments or give credits to certain wholesalers for the difference between the invoice price paid to us by our wholesaler customer for a particular product and the negotiated price that such wholesaler sells such products to its hospitals, group purchasing organizations, pharmacies or other retail customers. We also give certain of our customers credits on our products that such customers hold in inventory after we have decreased the WAC prices of such products, such credit being for the difference between the old and new price. In addition, we also implement and maintain returns policies, pursuant to which our customers may return product to us in certain circumstances in return for a credit. Although we establish reserves based on our prior experience, wholesaler data, then-current on-hand inventory, our best estimates of the impact that these policies may have in subsequent periods and certain other considerations, we cannot ensure that our reserves are adequate or that actual product returns, rebates, allowances and chargebacks will not exceed our estimates, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Item 1B.    Unresolved Staff Comments
None.

32



Item 2.    Properties
We own and lease a number of important properties. Our headquarters and one of our manufacturing facilities are located in Laval, Quebec. We have several manufacturing facilities throughout the U.S. We also own or have an interest in manufacturing plants or other properties outside the U.S., including Canada, Mexico, and certain countries in Europe, North Africa, Asia and South America.
We consider our facilities to be in satisfactory condition and suitable for their intended use, although some limited investments to improve our manufacturing and other related facilities are contemplated, based on the needs and requirements of our business. Our administrative, marketing, research/laboratory, distribution and warehousing facilities are located in various parts of the world. We co-locate our R&D activities with our manufacturing at the plant level in a number of facilities. Our scientists, engineers, quality control and manufacturing technicians work side-by-side in designing and manufacturing products that fit the needs and requirements of our customers, regulators and business units.
We believe that we have sufficient facilities to conduct our operations during 2016. Our facilities include, among others, the following list of principal properties by segment:
Location
 
Purpose
 
Owned
or
Leased
 
Approximate
Square
Footage
Laval, Quebec, Canada
 
Corporate headquarters, manufacturing and warehouse facility
 
Owned
 
337,000

Bridgewater, New Jersey(1)
 
Administration
 
Leased
 
310,000

Developed Markets
 
 
 
 
 
 
Rochester, New York
 
Offices, R&D and manufacturing facility
 
Owned
 
953,000

Waterford, Ireland
 
R&D and manufacturing facility
 
Owned
 
379,000

Berlin, Germany
 
Manufacturing, distribution and office facility
 
Owned
 
339,000

Greenville, South Carolina
 
Distribution facility
 
Leased
 
320,000

Steinbach, Manitoba, Canada
 
Offices, manufacturing and warehouse facility
 
Owned
 
250,000

Greenville, South Carolina
 
Manufacturing and distribution facility
 
Owned
 
225,000

Amsterdam, Netherlands
 
Offices and warehouse facility
 
Leased
 
218,000

Tampa, Florida
 
R&D and manufacturing facility
 
Owned
 
171,000

Chattanooga, Tennessee
 
Distribution facility
 
Leased
 
150,000

Emerging Markets
 
 
 
 
 
 
Jelenia Gora, Poland
 
Offices, R&D, manufacturing and warehouse facility
 
Owned
 
1,712,000

San Juan del Rio, Mexico
 
Offices and manufacturing facility
 
Owned
 
816,000

El Obour City, Egypt
 
Offices, R&D, manufacturing and warehouse facility
 
Owned
 
628,000

Jinan, China
 
Offices and manufacturing facility
 
Owned
 
420,000

Rzeszow, Poland
 
Offices, R&D and manufacturing facility
 
Owned
 
415,000

Cianjur, Indonesia
 
Offices, manufacturing and warehouse facility
 
Owned
 
343,000

Long An, Vietnam
 
Offices, manufacturing and warehouse facility
 
Owned
 
323,000

Indaiatuba, Brazil
 
Manufacturing facility
 
Owned
 
165,000

Belgrade, Serbia
 
Offices and manufacturing facility
 
Owned
 
161,000

Mexico City, Mexico
 
Offices and manufacturing facility
 
Owned
 
161,000

Myslowice, Poland
 
Warehouse facility
 
Leased
 
136,000

Medellin, Colombia
 
Offices, R&D, manufacturing and warehouse facility
 
Leased
 
97,000

Beijing, China
 
Offices and manufacturing facility
 
Owned
 
96,000

Beijing, China
 
Warehouse facility and distribution
 
Leased
 
93,000

Cheonan, Korea
 
Offices and manufacturing facility
 
Owned
 
62,000

____________________________________
(1) — A lease for a second building in Bridgewater, New Jersey was signed in 2015 (not included in the square footage shown in the table above). At this time, the building is not yet occupied.
Item 3.    Legal Proceedings

33



See Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K, which is incorporated by reference herein.
Item 4.    Mine Safety Disclosures
Not applicable.

34



PART II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common shares are traded on the New York Stock Exchange (“NYSE”) and on the Toronto Stock Exchange (“TSX”) under the symbol “VRX”. The following table sets forth the high and low per share sales prices for our common shares on the NYSE and TSX for the periods indicated.
 
 
NYSE
 
TSX
 
 
High
$
 
Low
$
 
High
C$
 
Low
C$
2015
 
 
 
 
 
 
 
 
First quarter
 
206.84
 
141.64
 
263.91
 
167.05
Second quarter
 
246.01
 
194.50
 
308.10
 
234.94
Third quarter
 
263.81
 
152.94
 
347.84
 
204.49
Fourth quarter
 
182.64
 
69.33
 
240.40
 
92.65
2014
 
 
 
 
 
 
 
 
First quarter
 
153.10
 
112.26
 
170.45
 
119.66
Second quarter
 
139.00
 
115.14
 
152.52
 
126.02
Third quarter
 
131.87
 
106.00
 
147.23
 
116.01
Fourth quarter
 
149.90
 
111.41
 
174.08
 
125.50
_______________
Source: NYSE.net, TSX Historical Data Access
Market Price Volatility of Common Shares
Market prices for the securities of pharmaceutical, medical devices and biotechnology companies, including our securities, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as fluctuations in our operating results, the aftermath of public announcements by us or by others about us, changes in our executive management, changes in our business strategy, concern as to safety of drugs and medical devices, the commencement or outcome of legal or governmental proceedings, investigations or inquiries, and general market conditions can have an adverse effect on the market price of our common shares and other securities. For example, we have recently experienced significant fluctuations and decreases in the market price of our common shares as a result of, among other things, the reduction of our earnings guidance, the medical leave of absence of our chief executive officer, public scrutiny of, and legal and governmental proceedings and investigations with respect to, certain of our distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor), and certain public allegations made by short sellers and other third parties relating to certain of these matters. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Holders
The approximate number of holders of record of our common shares as of April 22, 2016 is 3,137.
Performance Graph
The following graph compares the cumulative total return on our common shares with the cumulative return on the S&P 500 Index, the TSX/S&P Composite Index and a 12-stock Custom Composite Index for the five years ended December 31, 2015, in all cases, assuming reinvestment of dividends. The Custom Composite Index consists of Allergan Inc.; Amgen Inc.; Biogen Idec Inc.; Bristol Myers Squibb & Co.; Celgene Corporation; Danaher Corporation; Gilead Sciences Inc.; Lilly (Eli) & Co.; Shire plc; Mylan Inc.; Perrigo Co. and Vertex Pharmaceuticals Inc.

35



 
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
S&P 500 Index
100
102
118
157
178
181
S&P/TSX Composite Index
100
91
98
111
122
112
Valeant Pharmaceuticals International, Inc.
100
165
211
415
506
359
Custom Composite Index
100
119
144
239
317
356
Dividends
No dividends were declared or paid in 2015, 2014 or 2013. While our Board of Directors will review our dividend policy from time to time, we currently do not intend to pay any cash dividends in the foreseeable future. In addition, our Credit Agreement and indentures include restrictions on the payment of dividends.  Further, pursuant to an amendment to our Credit Agreement effective as of April 11, 2016, until the time that the Company delivers its First Quarter 2016 Form 10-Q and achieves a specified leverage ratio, the Company is subject to further limitations on paying dividends.  For more information on these restrictions, see Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or vote securities of our Company, except that the Investment Canada Act (Canada) (the “Investment Canada Act”) may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of our Company by a “non-Canadian”.
Investment Canada Act
An acquisition of control of a Canadian business by a non-Canadian is either reviewable (a “Reviewable Transaction”), in which case it is subject to both a reporting obligation and an approval process, or notifiable, in which case it is subject to only a reporting obligation. In the case of a Reviewable Transaction, the non-Canadian acquirer must submit an application for review with the prescribed information. The responsible Minister is then required to determine whether the Reviewable Transaction is likely to be of net benefit to Canada, taking into account the assessment factors specified in the Investment Canada Act and any written undertakings that may have been given by the non-Canadian acquirer.
The Investment Canada Act provides that any investment by a non-Canadian in a Canadian business, even where control has not been acquired, can be reviewed on grounds of whether it may be injurious to national security. Where an investment is determined to be injurious to national security, Cabinet can prohibit closing or, if closed, can order the investor to divest control. Short of a prohibition or divestment order, Cabinet can impose terms or conditions on the investment or can require the investor to provide binding undertakings to remove the national security concern.
Competition Act

36



Part IX of the Competition Act (Canada) (the “Competition Act”) requires that a pre-merger notification filing be submitted to the Commissioner of Competition (the “Commissioner”) in respect of certain classes of merger transactions that exceed certain prescribed thresholds. If a proposed transaction exceeds such thresholds, subject to certain exceptions, the notification filing must be submitted to the Commissioner and the statutory waiting period must expire or be terminated early or waived by the Commissioner before the transaction can be completed.
All mergers, regardless of whether they are subject to Part IX of the Competition Act, are subject to the substantive mergers provisions under Section 92 of the Competition Act. In particular, the Commissioner may challenge a transaction before the Competition Tribunal where the transaction prevents or lessens, or is likely to prevent or lessen, competition substantially in a market. The Commissioner may not make an application to the Competition Tribunal under Section 92 of the Competition Act more than one year after the merger has been substantially completed.
Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of our securities, except as discussed in “Taxation” below.
Taxation
Canadian Federal Income Taxation
The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to a holder of our common shares who, at all relevant times, for purposes of the Income Tax Act (Canada) and the Income Tax Regulations (collectively, the “Canadian Tax Act”) deals at arm’s-length with, and is not affiliated with, our Company, beneficially owns its common shares as capital property, does not use or hold and is not deemed to use or hold such common shares in carrying on a business in Canada, does not with respect to common shares enter into a “derivative forward agreement” as defined in the Income Tax Act, and who, at all relevant times, for purposes of the application of the Canadian Tax Act and the Canada-U.S. Income Tax Convention (1980, as amended) (the “U.S. Treaty”), is resident in the U.S., is not, and is not deemed to be, resident in Canada and is eligible for benefits under the U.S. Treaty (a “U.S. Holder”). Special rules, which are not discussed in the summary, may apply to a non-resident holder that is an insurer that carries on an insurance business in Canada and elsewhere or that is an “authorized foreign bank” as defined in the Canadian Tax Act.
The U.S. Treaty includes limitation on benefits rules that restrict the ability of certain persons who are resident in the U.S. to claim any or all benefits under the U.S. Treaty. Furthermore, limited liability companies (“LLCs”) that are not taxed as corporations pursuant to the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) do not generally qualify as resident in the U.S. for purposes of the U.S. Treaty. Under the U.S. Treaty, a resident of the U.S. who is a member of such an LLC and is otherwise eligible for benefits under the U.S. Treaty may generally be entitled to claim benefits under the U.S. Treaty in respect of income, profits or gains derived through the LLC. Residents of the U.S. should consult their own tax advisors with respect to their eligibility for benefits under the U.S. Treaty, having regard to these rules.
This summary is based upon the current provisions of the U.S. Treaty and the Canadian Tax Act and our understanding of the current administrative policies and assessing practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the U.S. Treaty and the Canadian Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. This summary does not otherwise take into account or anticipate changes in law or administrative policies and assessing practices, whether by judicial, regulatory, administrative or legislative decision or action, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may differ from those discussed herein.    
        This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice generally or to any particular holder. Holders should consult their own tax advisors with respect to their own particular circumstances.
Gains on Disposition of Common Shares
In general, a U.S. Holder will not be subject to tax under the Canadian Tax Act on capital gains arising on the disposition of such holder’s common shares unless the common shares are “taxable Canadian property” to the U.S. Holder and are not “treaty-protected property”.

37



As long as the common shares are then listed on a “designated stock exchange”, which currently includes the NYSE and TSX, the common shares generally will not constitute taxable Canadian property of a U.S. Holder, unless (a) at any time during the 60-month period preceding the disposition, the U.S. Holder, persons not dealing at arm’s length with such U.S. Holder or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the capital stock of the Company and more than 50% of the fair market value of the common shares was derived, directly or indirectly, from any combination of (i) real or immoveable property situated in Canada, (ii) “Canadian resource property” (as such term is defined in the Canadian Tax Act), (iii) “timber resource property” (as such terms are defined in the Canadian Tax Act), or (iv) options in respect of, or interests in, or for civil law rights in, any such properties whether or not the property exists, or (b) the common shares are otherwise deemed to be taxable Canadian property.
Common shares will be treaty-protected property where the U.S. Holder is exempt from income tax under the Canadian Tax Act on the disposition of common shares because of the U.S. Treaty. Common shares owned by a U.S. Holder will generally be treaty-protected property where the value of the common shares is not derived principally from real property situated in Canada, as defined in the U.S. Treaty.
Dividends on Common Shares
Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a U.S. Holder that is the beneficial owner of such dividends will generally be subject to non-resident withholding tax under the Canadian Tax Act and the U.S. Treaty at the rate of (a) 5% of the amounts paid or credited if the U.S. Holder is a company that owns (or is deemed to own) at least 10% of our voting stock, or (b) 15% of the amounts paid or credited in all other cases. The rate of withholding under the Canadian Tax Act in respect of dividends paid to non-residents of Canada is 25% where no tax treaty applies.
Securities Authorized for Issuance under Equity Compensation Plans
Information required under this Item will be included in our definitive proxy statement for the 2016 Annual Meeting of Shareholders expected to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K (the “2016 Proxy Statement”), and such required information is incorporated herein by reference.
Purchases of Equity Securities by the Company and Affiliated Purchases
Set forth below is the information regarding our purchases of equity securities during the fourth quarter of the year ended December 31, 2015:
Period
Total Number of
Shares (or Units)
Purchased(1)(2)
 
Average Price
Paid Per Share(3)
 
Total Number of Shares
Purchased as
Part of Publicly
Announced Plan
 
Maximum Number
(Approximate Dollar Value)
of Shares That
May Yet Be Purchased
Under the Plan(1)
 
 
 
 
 
 
 
(In millions)
October 1, 2015 to October 31, 2015
200,000

 
$
111.50

 
200,000

 
$
1,928

November 1, 2015 to November 30, 2015

 
$

 

 
$
3,000

December 1, 2015 to December 31, 2015

 
$

 

 
$
3,000

Total
200,000

 
$
111.50

 
200,000

 
 
__________________
(1)
On November 20, 2014, our Board of Directors authorized the repurchase of up to $2.00 billion of senior notes, common shares and/or other securities, subject to any restrictions in our financing agreements and applicable law (the “2014 Securities Repurchase Program”). The 2014 Securities Repurchase Program terminated on November 20, 2015. On November 18, 2015, the Company’s Board of Directors approved a new securities repurchase program (the “2015 Securities Repurchase Program”). Under the 2015 Securities Repurchase Program, which commenced on November 21, 2015, the Company could make purchases of up to $3.00 billion of its senior notes, common shares and/or other securities prior to the completion of the program, subject to any restrictions in the Company’s financing agreements and applicable law. The 2015 Securities Repurchase Program will terminate on November 20, 2016.
(2)
During the three-month period ended December 31, 2015, we repurchased $22 million of common shares (subsequently cancelled) under the 2014 Securities Repurchase Program and made no purchases of our senior notes under the 2014 Securities Repurchase Program. During the three-month period ended December 31, 2015, we did not make any repurchases of our senior notes or common shares under the 2015 Securities Repurchase Program. For more information regarding our repurchase programs, see Note 15 titled "SECURITIES REPURCHASES AND SHARE ISSUANCES" of notes to consolidated financial statements in Item 15 of this Form 10-K.
(3)
The average price paid per share excludes any broker commissions.
Item 6.    Selected Financial Data

38



The following table of selected consolidated financial data of our Company has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements as of and for the year ended December 31, 2014 have been restated as set forth in this Form 10-K. For additional information and a detailed discussion of the restatement, see Note 2 titled “RESTATEMENT” of notes to consolidated financial statements in Item 15 of this Form 10-K. The data is qualified by reference to, and should be read in conjunction with the consolidated financial statements and related notes thereto prepared in accordance with U.S. GAAP (see Item 15 “Exhibits and Financial Statement Schedules” of this Form 10-K as well as the discussion in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). All dollar amounts are expressed in millions of U.S. dollars, except per share data.
 
 
Years Ended December 31,
 
 
2015
 
2014 (Restated)
 
2013(1)
 
2012
 
2011
Consolidated operating data:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
10,446.5

 
$
8,206.0

 
$
5,769.6

 
$
3,480.4

 
$
2,427.5

Operating income (loss)
 
1,527.4

 
2,000.7

 
(409.5
)
 
79.7

 
300.0

Net (loss) income attributable to Valeant Pharmaceuticals International, Inc.
 
(291.7
)
 
880.7

 
(866.1
)
 
(116.0
)
 
159.6

(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.85
)
 
$
2.63

 
$
(2.70
)
 
$
(0.38
)
 
$
0.52

Diluted
 
$
(0.85
)
 
$
2.58

 
$
(2.70
)
 
$
(0.38
)
 
$
0.49

Cash dividends declared per share
 
$

 
$

 
$

 
$

 
$

 
 
At December 31,
 
 
2015
 
2014 (Restated)
 
2013(1)
 
2012
 
2011
Consolidated balance sheet information:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
597.3

 
$
322.6

 
$
600.3

 
$
916.1

 
$
164.1

Working capital(2)
 
194.6

 
1,423.3

 
1,373.4

 
954.7

 
433.2

Total assets(3)
 
48,964.5

 
26,304.7

 
27,932.9

 
17,910.5

 
13,049.6

Long-term debt, including current portion(3)
 
31,088.4

 
15,228.9

 
17,329.8

 
10,975.7

 
6,592.5

Common shares
 
9,897.4

 
8,349.2

 
8,301.2

 
5,940.7

 
5,963.6

Valeant Pharmaceuticals International, Inc. shareholders’ equity
 
5,911.0

 
5,279.4

 
5,118.7

 
3,717.4

 
3,929.8

 
 
 
 
 
 
 
 
 
 
 
Number of common shares issued and outstanding (in millions)
 
342.9

 
334.4

 
333.0

 
303.9

 
306.4

___________________
(1)
In 2013, we recognized an impairment charge of $552 million related to ezogabine/retigabine (immediate-release formulation), and we wrote off an IPR&D asset of $94 million relating to a modified-release formulation of ezogabine/retigabine. For more information regarding these impairment charges and other impairment charges, see Note 7 titled "FAIR VALUE MEASUREMENTS" and Note 11 titled "INTANGIBLE ASSETS AND GOODWILL" of notes to consolidated financial statements in Item 15 of this Form 10-K.
(2)
Represents current assets less current liabilities. The reduction in working capital in 2015 primarily relates to an increase in the current portion of long-term debt as well as an accrual for $500 million in deferred consideration related to the acquisition of Sprout Pharmaceuticals, Inc. (the "Sprout Acquisition") (the $500 million was paid in the first quarter of 2016). For more information regarding debt and the Sprout Acquisition, see Note 13 titled "LONG-TERM DEBT" and Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
(3)
In the second quarter of 2015, the Company adopted guidance issued by the Financial Accounting Standards Board which requires certain debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The adoption of this guidance, which was applied retrospectively to all periods presented, impacted presentation only. The resulting reclassifications between assets and long-term debt did not have a material impact on the Company's financial statements.
The amounts presented in the tables above also include the impact of several acquisitions and divestitures of businesses and assets. For more information regarding our acquisitions and divestitures, see Note 4 titled "ACQUISITIONS" and Note 5 titled "DIVESTITURES" of notes to consolidated financial statements in Item 15 of this Form 10-K.

39



Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESTATEMENT
The accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported consolidated financial statements (see Note 2 titled "RESTATEMENT" and Note 25 titled "SUMMARY QUARTERLY INFORMATION (UNAUDITED)" of notes to consolidated financial statements in Item 15 of this Form 10-K for further discussion of the restatement and impact of the restatement matters). Additionally, our management and the Audit and Risk Committee have concluded that material weaknesses in our internal control over financial reporting existed that contributed to the material misstatements in our consolidated financial statements. For further information regarding management’s assessment of internal control over financial reporting, refer to Item 9A "Controls and Procedures" in this Form 10-K.
INTRODUCTION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the audited consolidated financial statements, and notes thereto, prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) as of December 31, 2015 and 2014 and each of the three years in the period ended December 31, 2015 (the “2015 Financial Statements”).
Additional information relating to the Company, including this Form 10-K, is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the “SEC”) website at www.sec.gov.
Unless otherwise indicated herein, the discussion and analysis contained in this MD&A is as of April 29, 2016.
All dollar amounts are expressed in U.S. dollars, unless otherwise noted.
OVERVIEW
Valeant Pharmaceuticals International, Inc. (“we”, “us”, “our” or the “Company”) is a multinational, specialty pharmaceutical and medical device company that develops, manufactures, and markets a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. In the Developed Markets segment, we focus most of our efforts in the dermatology, neurology, gastrointestinal (“GI”) disorders, and eye health therapeutic classes. In the Emerging Markets segment, we focus primarily on branded generics, OTC products, and medical devices. We are diverse not only in our sources of revenue from our broad drug and medical device portfolio, but also among the therapeutic classes and geographies we serve.
On April 1, 2015, we acquired Salix Pharmaceuticals, Ltd. (“Salix”), pursuant to an Agreement and Plan of Merger dated February 20, 2015, as amended on March 16, 2015 (the “Merger Agreement”). Subject to the terms and conditions set forth in the Merger Agreement, Salix became a wholly owned subsidiary of Valeant Pharmaceuticals International (“Valeant”), our subsidiary (the “Salix Acquisition”). Salix is a specialty pharmaceutical company dedicated to developing and commercializing prescription drugs and medical devices used in treatment of variety of GI disorders with a portfolio of over 20 marketed products, including Xifaxan®, Uceris®, Apriso®, Glumetza®, and Relistor®. For further information regarding the Salix Acquisition, see Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Our strategy is to focus our business on core geographies and therapeutic classes that offer attractive growth opportunities while maintaining our lower selling, general and administrative cost model and decentralized operating structure. Within our chosen therapeutic classes and geographies, we primarily focus on durable products which have the potential for strong operating margins and sustainable organic growth. The growth of our business is further augmented through our lower risk, output-focused research and development model, which allows us to advance certain development programs to drive future commercial growth, while minimizing our research and development expense.
Further, our long-term strategy has also included deploying cash via business development, debt repayment and repurchases, and share buybacks. Since the Company’s (then named Biovail Corporation (“Biovail”)) acquisition of Valeant on September 28, 2010 (the “Merger”), we have completed numerous transactions to expand our portfolio offering and geographic footprint, including, among others, the Salix Acquisition and the acquisition of Bausch & Lomb Holdings Incorporated (“B&L”). While we anticipate business development through acquisitions may continue to be a component of our long-term strategy, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt levels. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for details

40


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

related to the April 11, 2016 amendment (the "April 2016 amendment") to our Credit Agreement including various restrictions that will impact how we conduct our business.
We believe our strategy will allow us to maximize both the growth rate and profitability of the Company and to enhance shareholder value. See Item 1 "Business" of this Form 10-K for additional information regarding our strategy, as well as other details around our business.
We measure our success through total shareholder return and, on that basis, as of April 22, 2016, the market price of our common shares on the New York Stock Exchange (“NYSE”) has increased approximately 40%, and the market price of our common shares on the Toronto Stock Exchange (“TSX”) has increased approximately 75%, since the Merger, as adjusted for the post-Merger special dividend of $1.00 per common share (the “post-Merger special dividend”). However, in recent months the market price of our common shares has declined significantly, experiencing a decrease of approximately 85% on each of the NYSE and TSX from August 5, 2015 (representing the date of the highest market price for our common shares) through April 22, 2016.
In 2016, we plan to continue to execute our strategy to drive growth of key products, progress our research and development pipeline, and execute new product launches. Some of our top priorities include, among others:
Maximizing our key therapeutic area businesses including: dermatology, GI, and eye health;
Obtaining regulatory approval for and successfully launching brodalumab, latanoprostene bunod, and Oral Relistor®, described further under "Products in Development" below;
Completing a successful transition of certain of our products to the new fulfillment arrangements with Walgreen Co. ("Walgreens"), described further under ''Selected Financial Information" below; and
Reducing outstanding debt levels.
ACQUISITIONS AND DIVESTITURES
We have completed several transactions in 2015, 2014, and 2013 including, among others, the following acquisitions, licenses and divestitures.
 
 
Acquisition
 Date
Acquisitions/licenses
 
2015
 
 
Amoun Pharmaceutical Company S.A.E. (“Amoun”)
 
October 2015
Sprout Pharmaceuticals, Inc. (“Sprout”)
 
October 2015
Certain brodalumab product rights
 
October 2015
Salix
 
April 2015
Certain assets of Dendreon Corporation (“Dendreon”)
 
February 2015
Certain assets of Marathon Pharmaceuticals, LLC (“Marathon”)
 
February 2015
2014
 
 
PreCision Dermatology, Inc. (“PreCision”)
 
July 2014
Solta Medical, Inc. (“Solta Medical”)
 
January 2014
2013
 
 
B&L
 
August 2013
Obagi Medical Products, Inc. (“Obagi”)
 
April 2013
Natur Produkt International, JSC (“Natur Produkt”)
 
February 2013
 
 
Divestiture
 Date
Divestitures
 
2014
 
 
Facial aesthetic fillers and toxins
 
July 2014
Metronidazole 1.3%
 
July 2014
Tretin-X® (tretinoin) cream and generic tretinoin gel and cream products
 
July 2014

41


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

For more information regarding our acquisitions and divestitures, see Note 4 titled "ACQUISITIONS" and Note 5 titled "DIVESTITURES" of notes to consolidated financial statements in Item 15 of this Form 10-K.
PRODUCTS IN DEVELOPMENT
The following products, among others, are currently in development:
Dermatology
Brodalumab is an IL-17 receptor monoclonal antibody for patients with moderate-to-severe plaque psoriasis and psoriatic arthritis. Regulatory submission in both the U.S. and the European Union occurred in November 2015. In January 2016, we announced that the U.S. Food and Drug Administration (the "FDA") accepted for review the Biologics License Application ("BLA") for brodalumab, and the FDA assigned a Prescription Drug User Fee Act ("PDUFA") action date of November 16, 2016.
IDP-118 is a fixed combination product with two different mechanisms of action for treating psoriasis. The Phase 3 program has commenced.
IDP-120 is a combination acne treatment. The Phase 2 program has commenced.
IDP-121 is a formulation of tretenoin for the treatment of acne. The Phase 3 program has commenced.
IDP-122 is a topical formulation of a steroid for the treatment of psoriasis. The Phase 3 program has commenced.
Next Generation Thermage® is a device designed to address the appearance of fine lines and wrinkles. Design verification testing is ongoing.
Eye Health
enVista® Toric is a one-piece hydrophobic acrylic toric intraocular lens ("IOL"). The lens is designed to minimize Posterior Capsular Opacification ("PCO"), a common post-surgical complication with IOLs that causes vision to become clouded post-surgery. The clinical study is ongoing.
Luminesse™ is being developed as an ocular redness reliever. Phase 3 studies have demonstrated fast onset and long-lasting efficacy, with low potential for rebound redness. We are currently in process of preparing the application for the FDA filing.
Latanoprostene bunod is an intraocular pressure ("IOP") lowering single-agent eye drop dosed once daily for patients with open angle glaucoma or ocular hypertension. In September 2015, we announced that the FDA has accepted for review the New Drug Application ("NDA") for this product and set a PDUFA action date of July 21, 2016.
Lotemax® Gel Next Generation (loteprednol etabonate 0.38%), an ophthalmic steroid, is being developed for the reduction of inflammation and pain following cataract surgery. The Phase 3 program is ongoing.
Ultra Toric and Multi-Focal contact lenses are made with a novel silicone hydrogel (samfilcon A) which allows more oxygen to the eyes for ocular health.  These contact lenses contain our MoistureSeal® technology, and we have expanded the design range of these contact lenses to provide these new lenses to more patients. The lenses have received approval from the FDA, and we are preparing final product qualifications and validations.
Vitesse™ is a novel vitreous cutter used in vitreoretinal surgeries and designed to compete against existing mechanical devices. Design verification testing is ongoing.
Next Generation Stellaris® is a new platform for cataract and retinal surgery. Several design concepts are currently being evaluated.
Gastrointestinal
Oral Relistor® is a tablet for the treatment of opioid-induced constipation in adult patients with chronic non-cancer pain. In September 2015, we announced that the FDA accepted for review the New Drug Application and set a PDUFA action date of April 19, 2016. In April 2016, we announced that the FDA had extended the PDUFA action date to July 19, 2016 to allow for a full review of our responses to certain information requests from the FDA.

42


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

RESTRUCTURING AND INTEGRATION
In connection with our acquisitions, we have implemented cost-rationalization and integration initiatives to capture operating synergies and generate cost savings across the Company. These measures included:
workforce reductions across the Company and other organizational changes;
closing of duplicative facilities and other site rationalization actions company-wide, including research and development facilities, sales offices and corporate facilities;
leveraging research and development spend; and
procurement savings.
Salix Acquisition-Related Cost-Rationalization and Integration Initiatives
The complementary nature of the Company and Salix businesses has provided an opportunity to capture significant operating synergies from reductions in sales and marketing, general and administrative expenses, and research and development. In total, in connection with the acquisition of Salix, we have identified approximately $530 million of cost synergies on an annual run rate basis that have been substantially achieved by the end of 2015. This amount does not include revenue synergies or the benefits of incorporating Salix’s operations into the Company’s corporate structure. We estimate that we will incur total costs of approximately $300 million in connection with these cost-rationalization and integration initiatives, of which $217 million has been incurred as of December 31, 2015.
B&L Acquisition-Related Cost-Rationalization and Integration Initiatives
The complementary nature of the Company and B&L businesses has provided an opportunity to capture significant operating synergies from reductions in sales and marketing, general and administrative expenses, and research and development. In total, we identified greater than $900 million of cost synergies on an annual run rate basis that were substantially achieved by the end of 2014. This amount does not include revenue synergies or the benefits of incorporating B&L’s operations into the Company’s corporate structure. We had estimated that we would incur total costs of approximately $600 million (excluding the charges of $53 million described in Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated financial statements in Item 15 of this Form 10-K) in connection with these cost-rationalization and integration initiatives, which were substantially completed by the end of 2014. As of December 31, 2015, we have incurred total costs of $578 million, and we do not expect to incur any additional costs beyond 2015.
See Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for detailed information summarizing the major components of costs incurred in connection with our Salix and B&L acquisition-related initiatives through December 31, 2015.
U.S. HEALTHCARE REFORM
The U.S. federal and state governments continue to propose and pass legislation designed to regulate the healthcare industry. In March 2010, the Patient Protection and Affordable Care Act (the “Act”) was enacted in the U.S. The Act contains several provisions that impact our business, including: (i) an increase in the minimum Medicaid rebate to states participating in the Medicaid program; (ii) the extension of the Medicaid rebates to Managed Care Organizations that dispense drugs to Medicaid beneficiaries; (iii) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers; and (iv) a fee payable to the federal government based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.
In addition to the above, in 2013: (i) federal subsidies began to be phased in for brand-name prescription drugs filled in the Medicare Part D cover gap and (ii) the law requires the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on U.S. sales of most medical devices. However, the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on December 18, 2015, includes a two year moratorium on the medical device excise tax. Thus, the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during the period beginning on January 1, 2016, and ending on December 31, 2017. The Act also included provisions designed to increase the number of Americans covered by health insurance. In 2014, the Act’s private health insurance exchanges began to operate along with the mandate on individuals to purchase health insurance. The Act also allows states to expand Medicaid coverage with most of the expansion’s cost paid for by the federal government.

43


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

In 2015, 2014 and 2013, we incurred costs of $28 million, $9 million and $3 million, respectively, related to the annual fee assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government programs (e.g., Medicare and Medicaid). We also incurred costs of $104 million, $43 million and $29 million on Medicare Part D utilization incurred by beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (i.e., the “donut hole”) in 2015, 2014 and 2013, respectively. The increase in Medicare Part D coverage gap liability is mainly due to Xifaxan®. Under the legislation, the total cost incurred by us for the medical device excise tax during 2015, 2014 and 2013 was $5 million, $6 million, and $4 million, respectively.
In July 2014, the Internal Revenue Service issued final regulations related to the branded pharmaceutical drug annual fee pursuant to the Act. Under the final regulations, an entity’s obligation to pay the annual fee is triggered by qualifying sales in the current year, rather than the liability being triggered upon the first qualifying sale of the following year. We adopted this guidance in the third quarter of 2014, and it did not have a material impact on our financial position or results of operations.
The financial impact of the Act may be affected by certain additional developments over the next few years, including pending implementation guidance and certain healthcare reform proposals. Additionally, policy efforts designed specifically to reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other pricing restrictions. Legislative efforts relating to drug pricing have been proposed and considered at the U.S. federal and state level. In addition, a number of the candidates for the 2016 U.S. presidential elections have introduced such policy proposals, and a November 2015 U.S. Department of Health and Human Services forum dedicated to drug pricing could lead to further proposals.
SELECTED FINANCIAL INFORMATION
The following table provides selected financial information for each of the last three years:
 
 
Years Ended December 31,
 
Change
 
 
2015
 
2014
(Restated)
 
2013
 
2014 to 2015
(Restated)
 
2013 to 2014
(Restated)
($ in millions, except per share data)
 
$
 
$
 
$
 
$
 
%
 
$
 
%
Revenues
 
10,446.5

 
8,206.0

 
5,769.6

 
2,240.5

 
27
 
2,436.4

 
42
Operating expenses
 
8,919.1

 
6,205.3

 
6,179.1

 
2,713.8

 
44
 
26.2

 
Net (loss) income attributable to Valeant Pharmaceuticals International, Inc.
 
(291.7
)
 
880.7

 
(866.1
)
 
(1,172.4
)
 
NM
 
1,746.8

 
NM
(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
 
 
 
 
 
 
 
 
 

 
 
 
 
Basic
 
(0.85
)
 
2.63

 
(2.70
)
 
(3.48
)
 
NM
 
5.33

 
NM
Diluted
 
(0.85
)
 
2.58

 
(2.70
)
 
(3.43
)
 
NM
 
5.28

 
NM
____________________________________
NM — Not meaningful
Financial Performance
Changes in Revenues
Total revenues increased $2.24 billion, or 27%, to $10.45 billion in 2015, primarily due to incremental product sales revenue of $2.21 billion, in the aggregate, from all 2014 and 2015 acquisitions. This increase was partially offset by (i) a negative foreign currency exchange impact on the existing business of $597 million in 2015, and (ii) a negative impact from divestitures and discontinuations of $141 million in 2015. Excluding the items described above, we realized incremental product sales revenue of $763 million in 2015 related to growth from the remainder of the existing business.
In October 2015, we announced that we would be severing all ties with and relating to the Philidor Rx Services, LLC ("Philidor") pharmacy network, which is consolidated as a variable interest entity within our consolidated financial statements as of December 31, 2014 and December 31, 2015. Effective November 1, 2015, we signed a termination agreement terminating all arrangements with and relating to Philidor, other than certain transition services which ended in January 2016, and Philidor will be deconsolidated from our consolidated financial statements in the first quarter of 2016 (For more information regarding Philidor, see Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K). Net sales recognized through Philidor represented approximately 5% of our total consolidated net revenue for 2015. The impact of Philidor as a consolidated entity on our net revenue for 2014 was nominal (and the net revenue on sales to Philidor prior to its consolidation within our consolidated financial statements represented less than 1% of our total consolidated net revenue for 2014).

44


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

In December 2015, we announced new fulfillment agreements with Walgreens and indicated that we intend to extend these programs to additional participating independent retail pharmacies. In conjunction with the fulfillment agreements, we will reduce prices of certain products within our branded prescription-based dermatological and ophthalmological businesses by, on average, approximately 10 percent. The reduced pricing will apply to the wholesale list prices of the products and will be phased in over six to nine months following the launch of the program (January 2016). Under the terms of the brand fulfillment agreement, we will make available certain of our products to eligible patients through a patient access and co-pay program available at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies. The programs under this 20-year agreement will initially cover certain of our dermatology products, including Jublia®, Luzu®, Solodyn®, Retin-A Micro® Gel 0.08%, Onexton® and Acanya® Gel, certain of our ophthalmology products, including Besivance®, Lotemax®, Alrex®, Prolensa®, Bepreve®, and Zylet®, and Addyi®. We also entered into a separate generic fulfillment agreement with Walgreens, which we plan to make available through Walgreens retail pharmacies in the second half of 2016. As a result of these new fulfillment agreements, in 2016, we anticipate the impact across all distribution channels of increased volume will approximate the impact of lower average selling prices. Over time, we anticipate the impact of the increased volume will more than offset the impact of lower average selling prices. 
Total revenues increased $2.44 billion, or 42%, to $8.21 billion in 2014, primarily due to incremental product sales revenue of $2.28 billion, in the aggregate, from all 2013 and 2014 acquisitions, partially offset by (i) a negative impact from divestitures, discontinuations and supply interruptions of $323 million in 2014 and (ii) a negative foreign currency exchange impact on the existing business of $165 million in 2014. Excluding the items described above, we realized incremental product sales revenue of $613 million in 2014 related to growth from the remainder of the existing business, partially offset by the impact of generic competition in the Developed Markets segment.
The above changes in revenues are further described below under “—Results of Operations—Revenues by Segment”.
As is customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions in arriving at reported net product sales.  Provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include cash discounts and allowances, chargebacks, and distribution fees, which are paid to direct customers, as well as rebates and returns, which can be paid to both direct and indirect customers. Price appreciation credits are generated when we increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we are entitled to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers. Such credits are used to offset against the total distribution service fees we pay on all of our products to each wholesaler. Net revenue on these credits is recognized on the date that the wholesaler is notified of the price increase. Provision balances relating to estimated amounts payable to direct customers are netted against accounts receivable, and balances relating to indirect customers are included in accrued liabilities.  The provisions recorded to reduce gross product sales to net product sales were as follows:
 
 
Years Ended December 31,
 
 
2015
 
2014
(Restated)
 
2013
($ in millions)
 
$
 
$
 
$
Gross product sales
 
15,508.2

 
11,436.6

 
7,849.8

Provisions to reduce gross product sales to net product sales
 
5,216.0

 
3,390.5

 
2,209.5

Net product sales
 
10,292.2

 
8,046.1

 
5,640.3

Percentage of provisions to gross sales
 
34
%
 
30
%
 
28
%
Provisions as a percentage of gross sales increased to 34% in 2015 from 30% in 2014. The increase was driven primarily by product mix due to increased sales of products which carry higher contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual price increase limitations.  Specifically, the comparisons were impacted primarily by (i) higher provisions for rebates, chargebacks, and returns, including managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii) higher rebate percentages for sales to the U.S. government (including Wellbutrin XL®).
Provisions as a percentage of gross sales increased to 30% in 2014 from 28% in 2013. The increase was driven primarily by higher provisions for returns and rebates, including the new co-pay assistance programs for launch products including Jublia®, Luzu®, and RAM 0.08%, as well as increased sales of generic products and Wellbutrin XL® (to the U.S. government), which have higher rebate percentages.

45


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

During the fourth quarter of 2015, we identified a misclassification between previously reported “Gross product sales” and “Provisions to reduce gross product sales to net product sales” in the table above. This misclassification did not impact “Net product sales” as reported in the consolidated statements of (loss) income. For the full year 2014 and the nine months ended September 30, 2015, we previously reported “Gross product sales” of $11,594 million and $11,885 million, respectively, which after adjusting for the misclassification, should have been $11,517 million and $11,106 million, respectively, prior to reflecting the effect of the restatement discussed in Note 2 titled “RESTATEMENT” of notes to consolidated financial statements. For the full year 2014 and the nine months ended September 30, 2015, we previously reported “Provisions to reduce gross product sales to net product sales” of $3,490 million and $4,295 million, respectively, which after adjusting for the misclassification, should have been $3,413 million and $3,516 million, respectively, prior to reflecting the effect of the restatement discussed in Note 2 titled “RESTATEMENT” of notes to consolidated financial statements. This misclassification relates to the presentation of gross product sales and related provisions for sales through Philidor, subsequent to the consolidation of Philidor in December 2014. The amounts reflected in the table above reflect the correction of this misclassification as well as the effect of the restatement.
Changes in Earnings Attributable to Valeant Pharmaceuticals International, Inc.
Net loss attributable to Valeant Pharmaceuticals International, Inc. was $292 million in 2015, compared with net income attributable to Valeant Pharmaceuticals International, Inc. of $881 million in 2014, reflecting the following factors: (i) an increase in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of finite-lived intangible assets) of $1.89 billion in 2015 more than offset by (ii) an increase in operating expenses driven mainly by an increase in amortization and impairments of finite-lived intangible assets, selling, general and administrative expenses, and other expense, and (iii) an increase in non-operating expenses driven mainly by interest expense. Operating expenses in the fourth quarter of 2015 include the impact from the termination of the Philidor arrangement (the termination was announced in October 2015), including impairments of intangible assets and property, plant and equipment of $102 million, in the aggregate, and incremental accounts receivable reserves of $27 million, partially offset by a contingent consideration gain of $47 million related to fair value adjustments to sales-based milestones.
Net income attributable to Valeant Pharmaceuticals International, Inc. was $881 million in 2014, compared with net loss attributable to Valeant Pharmaceuticals International, Inc. of $866 million in 2013, reflecting the following factors: (i) an increase in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of finite-lived intangible assets) of $2.07 billion in 2014, (ii) higher impairment charges in 2013 (primarily driven by the impairment charge for ezogabine/retigabine) and (iii) a net gain related to the divestiture of facial aesthetic fillers and toxins assets in 2014, partially offset by (iv) an increase in selling, general and administrative expenses, (v) an increase in the provision for income taxes and (vi) an increase in non-operating expense, net which included increases in interest expense, loss on extinguishment of debt, and foreign exchange and other, which were partially offset by the net gain recognized in connection with the sale by PS Fund 1, LLC (“PS Fund 1”) of the Allergan Inc. (“Allergan”) shares.
The above changes are further described below under “Results of Operations”.
RESULTS OF OPERATIONS
Reportable Segments
We have two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. The following is a brief description of our segments as of December 31, 2015:
Developed Markets consists of (i) sales in the U.S. of pharmaceutical products, OTC products, and medical device products, as well as alliance and contract service revenues, in the areas of dermatology and podiatry, neurology, gastrointestinal disorders, eye health, oncology and urology, dentistry, aesthetics, and women's health and (ii) pharmaceutical products, OTC products, and medical device products sold in Western Europe, Canada, Japan, Australia and New Zealand.
Emerging Markets consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products. Products are sold primarily in Central and Eastern Europe (primarily Poland and Russia), Asia, Latin America (Mexico, Brazil, Argentina, and Colombia and exports out of Mexico to other Latin American markets), Africa and the Middle East.
Revenues By Segment
Our primary sources of revenues are the sale of pharmaceutical products, OTC products, and medical devices. The following table displays revenues by segment for each of the last three years, the percentage of each segment’s revenues compared with total

46


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

revenues in the respective year, and the dollar and percentage change in the dollar amount of each segment’s revenues. Percentages may not sum due to rounding.
 
 
Years Ended December 31,
 
Change
 
 
2015
 
2014
(Restated)
 
2013
 
2014 to 2015
(Restated)
 
2013 to 2014
(Restated)
($ in millions)
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
Developed Markets
 
8,537.3

 
82
 
6,109.6

 
74
 
4,293.2

 
74
 
2,427.7

 
40
 
1,816.4

 
42
Emerging Markets
 
1,909.2

 
18
 
2,096.4

 
26
 
1,476.4

 
26
 
(187.2
)
 
(9)
 
620.0

 
42
Total revenues
 
10,446.5

 
100
 
8,206.0

 
100
 
5,769.6

 
100
 
2,240.5

 
27
 
2,436.4

 
42
2015 vs 2014
Total revenues increased $2.24 billion, or 27%, to $10.45 billion in 2015. The growth was mainly attributable to the effect of the following factors:
Developed Markets segment:
the incremental product sales revenue of $2.12 billion, in the aggregate, from all 2014 and 2015 acquisitions, primarily from the 2015 acquisitions of Salix (mainly driven by Xifaxan®, as well as Glumetza®, Uceris®, Apriso®, and Omeprazole product sales), certain assets of Marathon (mainly driven by Isuprel® and Nitropress® product sales), and certain assets of Dendreon (Provenge® product sales). Of the $2.12 billion increase, approximately one-quarter of such amount was attributable to price increases implemented subsequent to such acquisitions (primarily related to Isuprel®, Nitropress®, and Glumetza®). Regarding the Salix Acquisition, wholesaler inventory levels were reduced to less than two months at December 31, 2015, and we anticipate selling to demand by the second quarter of 2016. Overall, our U.S. wholesaler inventory levels were approximately 1.5 months at December 31, 2015, slightly under two months at December 31, 2014, and approximately 1.5 months at December 31, 2013.
These factors were partially offset by:
a negative foreign currency exchange impact on the existing business of $246 million in 2015, due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Euro, Canadian dollar, Australian dollar, and Japanese yen; and
a negative impact from divestitures and discontinuations of $121 million in 2015, primarily driven by $94 million in the U.S. related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing business of $667 million in 2015, driven by pricing actions, including those implemented in the first three quarters of 2015, in particular with respect to the neurology portfolio. These pricing actions included approximately $130 million of price appreciation credits. Volume was essentially flat as gains realized during the first nine months of 2015 were offset by volume reductions in the fourth quarter of 2015 primarily due to continued declines in neurology and lower volumes in dermatology as a result of the wind-down of the Philidor relationship. For the full year, volume reflects decreases in the Cardizem® family due to supply issues, Zovirax® and Targretin® due to generic competition, and Acanya® due to our competitive launch of the next-generation product, Onexton®, offset by increased volumes reflecting (1) higher sales of (i) Jublia® (launched in mid-2014), (ii) the Retin-A® franchise (including the launch of RAM 0.08% in mid-2014), (iii) Onexton® (launched in the fourth quarter of 2014), (iv) Arestin®, (v) Xenazine®, (vi) CeraVe® and (vii) Bausch + Lomb Ultra® and (2) higher sales from other recent product launches, including the launch of Biotrue® ONEday.
Emerging Markets segment:
the incremental product sales revenue of $92 million, in the aggregate, from all 2014 and 2015 acquisitions, including the 2015 acquisition of Amoun.
This factor was more than offset by:
a negative foreign currency exchange impact on the existing business of $351 million in 2015, due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Russian ruble, Polish zloty, Euro, Brazilian real, and the Mexican peso; and

47


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

a negative impact from divestitures and discontinuations of $20 million in 2015, primarily from Latin America.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing business of $96 million in 2015, driven primarily by volume. The overall growth primarily reflected higher sales in Asia (primarily China), Mexico, and Middle East/North Africa, partially offset by declining sales in Russia. Our wholesaler inventory levels in Russia and Poland, in the aggregate, approximated four to five months during 2015 (as compared to approximately three to four months during 2014).  During 2016, our goal is to bring such inventory levels below three months on hand, in-line with our targeted levels for such markets, which we anticipate will reduce revenue by approximately $50 million in 2016.    
2014 vs 2013
Total revenues increased $2.44 billion, or 42%, to $8.21 billion in 2014 primarily due to growth from acquisitions, including the B&L Acquisition. The remaining growth in 2014 reflected both price and volume, with slightly more than half of the growth from price. In the Developed Markets, the majority of growth was driven by price, and in the Emerging Markets, the growth was driven almost entirely by volume. The growth was mainly attributable to the effect of the following factors:
Developed Markets segment:
the incremental product sales revenue of $1.70 billion, in the aggregate, from all 2013 and 2014 acquisitions, primarily from (i) the 2013 acquisition of B&L (driven by Ocuvite®/PreserVision®, Lotemax®, ReNu Multiplus®, and Biotrue® Multipurpose solution product sales) and (ii) the 2014 acquisition of Solta Medical (mainly driven by Thermage CPT® system product sales) and PreCision (mainly driven by Clindagel® product sales); and
an increase in other revenues of $23 million in 2014, primarily related to higher royalty revenue.
Those factors were partially offset by:
a negative impact from divestitures, discontinuations and supply interruptions of $263 million in 2014, primarily driven by a decrease of $174 million related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins, as well as the discontinuation of Maxair® and the divestiture of Buphenyl® in 2013; and
a negative foreign currency exchange impact on the existing business of $60 million in 2014 due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Canadian dollar, Japanese yen, and Australian dollar.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing business of $417 million in 2014. The growth reflected (1) higher sales of (i) orphan products (Syprine® and Xenazine®), (ii) Targretin®, (iii) Wellbutrin XL® (U.S.), and (iv) Jublia® and (2) higher sales from recent product launches, including the launches of RAM 0.08% and Luzu®, partially offset by a decrease in product sales of $172 million, in the aggregate, due to generic competition. The decrease from generic competition related to a decline in sales of the Vanos®, Retin-A Micro® (excluding RAM 0.08%) and Zovirax® franchises and Wellbutrin® XL (Canada).
Emerging Markets segment:
the incremental product sales revenue of $581 million, in the aggregate, from all 2013 and 2014 acquisitions, primarily from the 2013 acquisition of B&L (driven by ReNu Multiplus®, Ocuvite®, and Artelac® product sales) and the 2014 acquisition of Solta Medical (mainly driven by Thermage CPT® system product sales).
This factor was partially offset by:
a negative foreign currency exchange impact on the existing business of $105 million in 2014 due to the impact of a strengthening of the U.S. dollar against certain currencies, in particular the Russian ruble; and
a negative impact from divestitures, discontinuations and supply interruptions of $60 million in 2014, primarily from Eastern Europe and Brazil.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing business of $196 million in 2014. The growth reflected higher sales in Eastern Europe, Middle East and North Africa, Southeast Asia and Mexico.
Segment Profit

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Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Segment profit is based on operating income after the elimination of intercompany transactions (including transactions with any consolidated variable interest entities). Certain costs, such as restructuring, integration and acquisition-related costs, in-process research and development impairments and other charges and other (income) expense, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance. In addition, a portion of share-based compensation, representing the difference between actual and budgeted expense, is not allocated to segments.
The following table displays profit by segment for each of the last three years, the percentage of each segment’s profit compared with corresponding segment revenues in the respective year, and the dollar and percentage change in the dollar amount of each segment’s profit. Percentages may not add due to rounding.
 
 
Years Ended December 31,
 
Change
 
 
2015
 
2014
(Restated)
 
2013
 
2014 to 2015
(Restated)
 
2013 to 2014
(Restated)
($ in millions)
 
$
 
%(1)
 
$
 
%(1)
 
$
 
%(1)
 
$
 
%
 
$
 
%
Developed Markets
 
2,463.8

 
29
 
1,980.7

 
32
 
573.2

 
13
 
483.1

 
24
 
1,407.5

 
246
Emerging Markets
 
238.5

 
12
 
337.3

 
16
 
93.0

 
6
 
(98.8
)
 
(29)
 
244.3

 
263
Total segment profit
 
2,702.3

 
26
 
2,318.0

 
28
 
666.2

 
12
 
384.3

 
17
 
1,651.8

 
248
____________________________________
(1) — Represents profit as a percentage of the corresponding revenues.
2015 vs 2014
Total segment profit increased $384 million, or 17%, to $2.70 billion in 2015, mainly attributable to the effect of the following factors:
Developed Markets segment:
an increase in contribution of $1.65 billion, in the aggregate, from all 2014 and 2015 acquisitions in 2015, primarily from sales of Salix, Marathon, and Dendreon products, including expenses for acquisition accounting adjustments related to inventory of $130 million (primarily Salix and Marathon), in the aggregate, in 2015; and
a favorable impact of $27 million related to the existing business acquisition accounting adjustments related to inventory in 2014, that did not similarly occur in 2015.
Those factors were partially offset by:
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $1.57 billion in 2015, primarily associated with the acquisitions of new businesses within the segment (primarily Salix);
a negative foreign currency exchange impact on the existing business contribution of $184 million in 2015, due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Euro, Canadian dollar, Australian dollar, and Japanese yen; and
a decrease in contribution related to divestitures and discontinuations of $97 million in 2015, primarily driven by $80 million related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the existing business of $650 million in 2015. Refer to "—Revenues By Segment" above for additional details.
Emerging Markets segment:
a decrease in operating expenses (including amortization and impairments of finite-lived intangible assets) of $56 million in 2015, primarily driven by foreign currency exchange; and
an increase in contribution of $43 million in 2015, primarily from all 2014 and 2015 acquisitions.
These factors were more than offset by:
a negative foreign currency exchange impact on the existing business contribution of $211 million in 2015, due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Russian ruble, Polish zloty, Euro, Brazilian real, and the Mexican peso; and

49


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

a decrease in contribution related to divestitures and discontinuations of $12 million in 2015.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the existing business of $30 million in 2015. Refer to "—Revenues By Segment" above for additional details.
2014 vs 2013
Total segment profit increased $1.65 billion, or 248%, to $2.32 billion in 2014, mainly attributable to the effect of the following factors:
Developed Markets segment:
an increase in contribution of $1.14 billion, in the aggregate, from all 2013 and 2014 acquisitions, primarily from the product sales of B&L, Solta Medical and PreCision, including higher expenses for acquisition accounting adjustments related to inventory of $29 million, in the aggregate, in 2014; and
a favorable impact of $307 million related to the existing business acquisition accounting adjustments related to inventory in 2013 that did not similarly occur in 2014 (primarily related to B&L).
Those factors were partially offset by:
a decrease in contribution related to divestitures, discontinuations and supply interruptions of $214 million in 2014, primarily driven by a decrease in contribution of $149 million related to the divestiture of facial aesthetic fillers and toxins in the third quarter of 2014;
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $202 million in 2014 primarily due to (i) the acquisitions of new businesses within the segment (primarily B&L), partially offset by (ii) the impairment charge of $552 million related to ezogabine/retigabine in the third quarter of 2013; and
a negative foreign currency exchange impact on the existing business contribution of $45 million in 2014 due to the impact of a strengthening of the U.S. dollar against certain currencies, including the Canadian dollar, Japanese yen, and Australian dollar.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the existing business of $395 million in 2014, driven by (1) higher sales of (i) orphan products (Syprine® and Xenazine®), (ii) Targretin®, (iii) Jublia®, and (iv) Wellbutrin XL® (U.S.) and (2) higher sales from recent product launches, including the launches of RAM 0.08% and Luzu®, partially offset by a decrease in contribution of $160 million related to a decline in sales of the Vanos®, Retin-A Micro® (excluding RAM 0.08%) and Zovirax® franchises and Wellbutrin® XL (Canada) as a result of the continued impact of generic competition.
Emerging Markets segment:
an increase in contribution of $379 million, in the aggregate, from all 2013 and 2014 acquisitions, primarily from the sale of B&L and Solta Medical products; and
a favorable impact of $65 million related to the existing business acquisition accounting adjustments related to inventory in 2013 that did not similarly occur in 2014 (primarily related to B&L).
Those factors were partially offset by:
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $250 million in 2014, primarily associated with the acquisitions of new businesses within the segment;
a negative foreign currency exchange impact on the existing business contribution of $65 million in 2014 due to the impact of a strengthening of the U.S. dollar against certain currencies, in particular the Russian ruble; and
a decrease in contribution related to divestitures, discontinuations and supply interruptions of $38 million in 2014.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the existing business of $149 million in 2014. The growth reflected higher sales in Eastern Europe, Middle East and North Africa, Southeast Asia and Mexico.
Operating Expenses

50


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The following table displays the dollar amount of each operating expense category for each of the last three years, the percentage of each category compared with total revenues in the respective year, and the dollar and percentage changes in the dollar amount of each category. Percentages may not sum due to rounding.
 
 
Years Ended December 31,
 
Change
 
 
2015
 
2014
(Restated)
 
2013
 
2014 to 2015
(Restated)
 
2013 to 2014
(Restated)
($ in millions)
 
$
 
%(1)
 
$
 
%(1)
 
$
 
%(1)
 
$
 
%
 
$
 
%
Cost of goods sold (exclusive of amortization and impairments of finite-lived intangible assets shown separately below)
 
2,531.6

 
24
 
2,177.7

 
27
 
1,846.3

 
32
 
353.9

 
16
 
331.4

 
18
Cost of other revenues
 
53.1

 
1
 
58.4

 
1
 
58.8

 
1
 
(5.3
)
 
(9)
 
(0.4
)
 
(1)
Selling, general and administrative
 
2,699.8

 
26
 
2,026.3

 
25
 
1,305.2

 
23
 
673.5

 
33
 
721.1

 
55
Research and development
 
334.4

 
3
 
246.0

 
3
 
156.8

 
3
 
88.4

 
36
 
89.2

 
57
Amortization and impairments of finite-lived intangible assets
 
2,418.3

 
23
 
1,550.7

 
19
 
1,902.0

 
33
 
867.6

 
56
 
(351.3
)
 
(18)
Restructuring, integration and other costs
 
361.9

 
3
 
381.7

 
5
 
462.0

 
8
 
(19.8
)
 
(5)
 
(80.3
)
 
(17)
In-process research and development impairments and other charges
 
248.4

 
2
 
41.0

 
 
153.6

 
3
 
207.4

 
506
 
(112.6
)
 
(73)
Acquisition-related costs
 
38.5

 
 
6.3

 
 
36.4

 
1
 
32.2

 
511
 
(30.1
)
 
(83)
Acquisition-related contingent consideration
 
(23.0
)
 
 
(14.1
)
 
 
(29.2
)
 
(1)
 
(8.9
)
 
63
 
15.1

 
(52)
Other expense (income)
 
256.1

 
2
 
(268.7
)
 
(3)
 
287.2

 
5
 
524.8

 
NM
 
(555.9
)
 
NM
Total operating expenses
 
8,919.1

 
85
 
6,205.3

 
76
 
6,179.1

 
107
 
2,713.8

 
44
 
26.2

 
____________________________________
(1) — Represents the percentage for each category as compared to total revenues.
NM — Not meaningful
Cost of Goods Sold (exclusive of amortization and impairments of finite-lived intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of products we purchase from third parties; royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market adjustments to inventories. Cost of goods sold excludes the amortization and impairments of finite-lived intangible assets described separately below under “— Amortization and Impairments of Finite-Lived Intangible Assets.”
Cost of goods sold increased $354 million, or 16%, to $2.53 billion in 2015. As a percentage of revenue, Cost of goods sold decreased to 24% in 2015 as compared to 27% in 2014. The comparisons were impacted primarily by:
a favorable impact from product mix and geographic mix driven by growth in the U.S. businesses and recent dermatology product launches, including Jublia®, RAM 0.08%, and Onexton®. These are higher margin products as compared to our overall product portfolio; and
a favorable impact from sales of certain products acquired in the Salix Acquisition in the second quarter of 2015 (such as Xifaxan®), which represent higher margin products as compared to our overall product portfolio.
Those factors were partially offset by:
an unfavorable impact on margin from foreign currency exchange of $372 million in 2015;
the impact of incremental acquisition accounting adjustments of $106 million in 2015, primarily related to the fair value step-up for acquired inventory from the Salix Acquisition and the acquisition of certain assets of Marathon which was expensed in 2015 that did not similarly occur in 2014; and
an unfavorable impact from sales of Provenge® (acquired as part of the acquisition of certain assets of Dendreon in the first quarter of 2015) and Glumetza® (acquired as part of the Salix Acquisition in the second quarter of 2015), both of which represent lower margin products as compared to our overall product portfolio.
Cost of goods sold increased $331 million, or 18%, to $2.18 billion in 2014. As a percentage of revenue, Cost of goods sold decreased to 27% in 2014 as compared to 32% in 2013, primarily due to:

51


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

the impact of lower acquisition accounting adjustments of $345 million in 2014, primarily related to the fair value step-up for acquired inventory from the B&L Acquisition and the 2012 acquisition of Medicis Pharmaceutical Corporation ("Medicis") which was expensed in 2013 that did not similarly occur in 2014; and
a favorable impact from product mix driven by new product launches, including Jublia®, Luzu®, and RAM 0.08%, which represent higher margin products as compared to our overall product portfolio.
Those factors were partially offset by:
an unfavorable impact from product mix related to (i) the product portfolio acquired as part of the B&L Acquisition and (ii) decreased sales of certain products in the Developed Markets segment due to generic competition (as described above) which represent higher margin products as compared to our overall product portfolio.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") primarily include: employee compensation costs associated with sales and marketing, finance, legal, information technology, human resources, and other administrative functions; certain outside legal fees and consultancy costs; product promotion expenses; overhead and occupancy costs; depreciation of corporate facilities and equipment; and other general and administrative costs.
SG&A increased $674 million, or 33%, to $2.70 billion in 2015. As a percentage of revenue, SG&A increased to 26% in 2015 as compared to 25% in 2014. SG&A in 2015 was impacted primarily by:
higher expenses of $378 million to support the U.S. operations, primarily to support recent product launches in dermatology (including Jublia® and Onexton®) and the contact lens business;
higher expenses of $311 million, related to acquisitions, including the Salix Acquisition and the acquisition of certain assets of Dendreon;
increased share-based compensation expense of $62 million, primarily driven by new awards granted during the period, the impact of the accelerated vesting related to certain performance-based restricted stock unit ("RSU") awards, and the impact from a modification made to certain share-based awards;
a charge in the fourth quarter of 2015 of $27 million for incremental accounts receivable reserves primarily related to (i) a settlement with R&O Pharmacy, LLC ("R&O") regarding outstanding receivable amounts and (ii) certain Philidor customers (see Note 3 titled "SIGNIFICANT ACCOUNTING POLICIES" and Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information regarding R&O); and
a write-off of property, plant and equipment in the fourth quarter of 2015 of $23 million in connection with the termination of the arrangements with and relating to Philidor.
Those factors were partially offset by:
a favorable impact from foreign currency exchange of $189 million in 2015; and
lower expenses of $32 million, related to the facial aesthetic fillers and toxins assets which were divested in the third quarter of 2014.
SG&A increased $721 million, or 55%, to $2.03 billion in 2014. As a percentage of revenue, SG&A increased to 25% in 2014 as compared to 23% in 2013. SG&A in 2014 was impacted primarily by:
higher expenses of $464 million from the full year impact of expenses related to the B&L Acquisition;
higher expenses of $39 million associated with sales force expansion for the dermatology and contact lens businesses;
increased share-based compensation expenses of $27 million driven primarily by (i) the incremental compensation expense related to the higher fair value for share-based awards granted in 2014 and (ii) the impact of the accelerated vesting in the first half of 2014 related to certain performance-based RSU awards; and
higher expenses of $18 million related to product launches, including the launches of Jublia®, Luzu®, and RAM 0.08%.

52


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

See Note 16 titled "SHARE-BASED COMPENSATION" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information related to share-based compensation.
Research and Development Expenses
Expenses related to research and development programs include: employee compensation costs; overhead and occupancy costs; depreciation of research and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up costs; and other third party development costs.
Research and development expenses increased $88 million, or 36%, to $334 million in 2015, primarily due to spending on programs acquired in the Salix Acquisition and the acquisition of certain assets of Dendreon.
In September 2015, we announced that the FDA accepted for review the NDA for latanoprostene bunod ophthalmic solution 0.024%, and the FDA assigned a PDUFA action date of July 21, 2016.
In September 2015, we announced that the FDA accepted for review the NDA for Oral Relistor®, and the FDA assigned a PDUFA action date of April 19, 2016. In April 2016, we announced that the FDA had extended the PDUFA action date for Oral Relistor® to July 19, 2016 to allow for a full review of our responses to certain information requests from the FDA.
In January 2016, we announced that the FDA accepted for review the BLA for brodalumab, and the FDA assigned a PDUFA action date of November 16, 2016.
Research and development expenses increased $89 million, or 57%, to $246 million in 2014, primarily due to higher spending on programs acquired in the B&L Acquisition, including latanoprostene bunod, Lotemax® life cycle programs, and brimonidine, partially offset by lower spending on Jublia® (efinaconazole 10% topical solution). In June 2014, the FDA approved the NDA for Jublia®, and the product was launched.
Amortization and Impairments of Finite-Lived Intangible Assets
Amortization and impairments of finite-lived intangible assets increased $868 million, or 56%, to $2.42 billion in 2015, primarily due to (i) amortization of 2014 and 2015 acquisitions in 2015 (primarily the Salix Acquisition, and the acquisitions of certain assets of both Marathon and Dendreon) that did not similarly exist for the full year in 2014, including amortization of $284 million related to Xifaxan® 550 mg for the treatment of irritable bowel syndrome with diarrhea in adults ("Xifaxan® IBS-D"), acquired as part of the Salix Acquisition, since its approval date in May 2015, (ii) the write-off of intangible assets in the fourth quarter of 2015 of $79 million in connection with the termination of the arrangements with and relating to Philidor, (iii) an impairment charge in the fourth quarter of 2015 of $27 million related to the write-off of the remaining intangible asset for ezogabine/retigabine (immediate-release formulation) resulting from further analysis of commercialization strategy and projections, and (iv) an impairment charge in the third quarter of 2015 of $26 million related to Zelapar® resulting from declining sales trends, partially offset by (v) a decrease of $25 million in 2015 in amortization of the facial aesthetic fillers and toxins assets which were divested in July 2014.
Amortization and impairments of finite-lived intangible assets decreased $351 million, or 18%, to $1.55 billion in 2014, primarily due to (i) a decrease of $631 million for ezogabine/retigabine due to the impairment charge of $552 million recognized in the third quarter of 2013 (which also resulted in lower amortization expense in 2014), (ii) a decrease in amortization of the facial aesthetic fillers and toxins assets which were divested in July 2014 of $44 million, (iii) impairment charges of $32 million recognized in 2013 related to the write-down of the carrying values of assets held for sale related to certain suncare and skincare brands sold primarily in Australia, and (iv) a $22 million write-off recognized in 2013 related to the Opana® intangible asset, partially offset by (v) an increase in amortization of the B&L, Solta Medical and PreCision identifiable intangible assets of $243 million, in the aggregate, in 2014, (vi) a $55 million write-off recognized in 2014 related to the Kinerase® intangible asset, and (vii) a $32 million write-off in 2014 related to the Grifulvin® intangible asset.
As part of our ongoing assessment of potential impairment indicators related to our finite-lived and indefinite-lived intangible assets, we will closely monitor the performance of our product portfolio, such as our recently launched Addyi® product. If our ongoing assessments reveal indications of impairment, we may determine that an impairment charge is necessary and such charge could be material.
Restructuring, Integration and Other Costs
We recognized restructuring, integration, and other costs of $362 million in 2015, compared with $382 million and $462 million in 2014 and 2013, respectively, primarily related to the Salix Acquisition and the acquisition of certain assets of Dendreon in 2015, the Solta Medical and Precision acquisitions in 2014, and the B&L acquisition in 2013, as well as other smaller acquisitions.

53


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Refer to Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further detail.
In-Process Research and Development Impairments and Other Charges
In-process research and development impairments and other charges represents impairments and other costs associated with compounds, new indications, or line extensions under development that have not received regulatory approval for marketing at the time of acquisition. IPR&D acquired through an asset acquisition is written off at the acquisition date if the assets have no alternative future use. IPR&D acquired in a business combination is capitalized as indefinite-lived intangible assets (irrespective of whether these assets have an alternative future use) until completion or abandonment of the related research and development activities. Costs associated with the development of acquired IPR&D assets are expensed as incurred.
In 2015, we recognized in-process research and development charges of $248 million, primarily related to (i) the $100 million upfront payment in connection with the license of brodalumab, (ii) a write-off of $90 million in the third quarter of 2015 related to the Rifaximin SSD development program based on analysis of Phase 2 study data, (iii) a write-off of $28 million in the fourth quarter of 2015 related to the Emerade® program in the U.S. based on analysis of feedback received from the FDA, and (iv) a write-off of $12 million in the second quarter of 2015 related to the Arestin® Peri-Implantitis development program based on analysis of Phase 3 study data.
In 2014, we recognized charges of $41 million primarily due to (i) the write-off of an IPR&D asset of $13 million related to analysis of Phase 2 study data for a dermatological product candidate acquired in the Medicis acquisition, (ii) an up-front payment of $12 million made in connection with an amendment to a license and distribution agreement with a third party, and (iii) payments to third parties associated with the achievement of specific development milestones prior to regulatory approval under our research and development programs, including Jublia®, in 2014.
In 2013, we recognized charges of $154 million, primarily due to the write-off of (i) $94 million relating to the modified-release formulation of ezogabine/retigabine, (ii) $27 million of IPR&D assets, mainly related to the termination of the A007 (Lacrisert®) development program, (iii) $14 million related to the termination of the Mapracorat development program, and (iv) $9 million related to a Xerese® life-cycle product.
Acquisition-Related Costs
Acquisition-related costs increased $32 million, or 511%, to $39 million in 2015, reflecting higher expenses incurred in 2015 related primarily to the Salix Acquisition, as well as other acquisitions, partially offset by acquisition activities in 2014, primarily related to the PreCision and Solta Medical acquisitions.
Acquisition-related costs decreased $30 million, or 83%, to $6 million in 2014, reflecting higher expenses incurred in 2013 related to the B&L, Obagi and Natur Produkt acquisitions, as well as other acquisitions, partially offset by acquisition activities in 2014, primarily related to the PreCision and Solta Medical acquisitions.
See Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information regarding business combinations. Certain costs related to our investment in PS Fund 1 were recorded in Gain on investments, net. See Note 24 titled "PS FUND 1 INVESTMENT" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information relating to these costs.
Acquisition-Related Contingent Consideration
In 2015, we recognized an acquisition-related contingent consideration gain of $23 million. The net gain was primarily driven by fair value adjustments in the fourth quarter of 2015 of $47 million resulting from the termination of the arrangements with and relating to Philidor and $16 million resulting from the termination of the Emerade® IPR&D program in the U.S., partially offset by accretion for the time value of money for the Salix Acquisition and the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL in June 2011 (the "Elidel®/Xerese®/Zovirax® agreement").
In 2014, we recognized an acquisition-related contingent consideration gain of $14 million. The net gain was primarily driven by net fair value adjustments of $19 million related to the Elidel®/Xerese®/Zovirax® agreement, as a result of continued assessment of the impact from generic competition on performance trends and future revenue forecasts for Zovirax®.
In 2013, we recognized an acquisition-related contingent consideration gain of $29 million. The net gain was primarily driven by a net gain related to the Elidel®/Xerese®/Zovirax® agreement. As a result of analysis in the third quarter of 2013 of performance trends since the launch of a generic Zovirax® ointment in April 2013, we adjusted the projected revenue forecast, resulting in an acquisition-related contingent consideration net gain of $20 million in 2013. Also contributing to the acquisition-

54


Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

related contingent net gain was a net gain of $7 million, which resulted from the termination, in the third quarter of 2013, of the A007 (Lacrisert®) development program, which impacted the probability associated with potential milestone payments.
Other Expense (Income)
Other expense (income) primarily includes: legal settlements and related fees and gains/losses from the sale of assets and businesses.
In 2015, we recognized other expense of $256 million, primarily due to (i) a post-combination expense of $168 million recognized in the second quarter of 2015 related to the acceleration of unvested restricted stock for Salix employees (including $3 million of related payroll taxes) in connection with the Salix Acquisition, (ii) a legal-related charge of $25 million recognized in the third quarter of 2015 related to the AntiGrippin® litigation, and (iii) a post-combination expense of $12 million recognized in the fourth quarter of 2015 related to bonuses paid to Amoun employees. Refer to Note 4 titled "ACQUISITIONS" and Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further details related to the Salix and Amoun acquisitions and the AntiGrippin® litigation, respectively.
In 2014, we recognized other income of $269 million, primarily related to (i) a net gain of $324 million related to the divestiture of facial aesthetic fillers and toxins in the third quarter of 2014 and (ii) the reversal of a $50 million reserve related to the AntiGrippin® litigation in the first quarter of 2014, partially offset by (iii) a net loss of $59 million related to the divestiture of Metronidazole 1.3% in the third quarter of 2014, (iv) a post-combination expense of $20 million in the third quarter of 2014 related to the acceleration of unvested stock options for PreCision employees, and (v) a loss on sale of $9 million related to the divestiture of the generic tretinoin product rights in the third quarter of 2014, acquired in the PreCision acquisition. Refer to Note 4 titled "ACQUISITIONS", Note 5 titled "DIVESTITURES" and Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further details related to the divestitures of facial aesthetic fillers and toxins and Metronidazole 1.3%, the AntiGrippin® litigation and the acquisition of PreCision, respectively.
In 2013, we recognized other expense of $287 million, primarily due to (i) a charge of $143 million in the third quarter of 2013 related to a settlement agreement with Anacor Pharmaceuticals, Inc. (“Anacor”), (ii) a post-combination expense of $53 million, in the aggregate, related to B&L’s previously cancelled performance-based options and the acceleration of unvested stock options for B&L employees as a result of the B&L Acquisition, (iii) a charge of $50 million in the fourth quarter of 2013 related to AntiGrippin® litigation, and (iv) a loss of $10 million related to the sale of certain skincare products sold primarily in Australia in the fourth quarter of 2013. Refer to Note 4 titled "ACQUISITIONS", Note 5 titled "DIVESTITURES" and Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further details related to the divestiture of certain skincare products sold in Australia, the B&L Acquisition, and the AntiGrippin® litigation, respectively.
Non-Operating (Expense) Income
The following table displays each non-operating income or expense category for each of the last three years, and the dollar and percentage changes in the dollar amount of each category.
 
 
Years Ended December 31,
 
Change
 
 
2015
 
2014
 
2013
 
2014 to 2015
 
2013 to 2014
($ in millions; Income (Expense))
 
$
 
$
 
$
 
$
 
%
 
$
 
%
Interest income
 
3.3

 
5.0

 
8.0

 
(1.7
)
 
(34)
 
(3.0
)
 
(38)
Interest expense
 
(1,563.2
)
 
(971.0
)
 
(844.3
)
 
(592.2
)
 
61
 
(126.7
)
 
15
Loss on extinguishment of debt
 
(20.0
)
 
(129.6
)
 
(65.0
)
 
109.6

 
(85)
 
(64.6
)
 
99
Foreign exchange and other
 
(102.8
)
 
(144.1
)
 
(9.4
)
 
41.3

 
(29)
 
(134.7
)
 
NM
Gain on investments, net
 

 
292.6

 
5.8

 
(292.6
)