##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 1-11397
      Valeant Pharmaceuticals
    International
 (Exact name of registrant as
    specified in its charter)
  Delaware

33-0628076(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification No.)One Enterprise

92656Aliso Viejo,
    California

(Zip Code)(Address of principal executive
    offices)   (949) 461-6000
 (Registrants telephone
    number, including area code)
  þ o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ




---



##### 



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  INDEX
  PageNumberPART I 
    FINANCIAL INFORMATIONItem 1.


Financial
    Statements


2Consolidated
    Condensed Balance Sheets as of March 31, 2007 and
    December 31, 2006


2Consolidated
    Condensed Statements of Operations for the three months ended
    March 31, 2007 and 2006


3Consolidated
    Condensed Statement of Comprehensive Income for the three months
    ended March 31, 2007 and 2006


4Consolidated
    Condensed Statements of Cash Flows for the three months ended
    March 31, 2007 and 2006


5Notes to
    Consolidated Condensed Financial Statements


6Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


39Item 4.


Controls and
    Procedures


40PART II 
    OTHER INFORMATIONItem 1.


Legal
    Proceedings


40Item 1A.


Risk
    Factors


40Item 6.


Exhibits


42SIGNATURES


43EXHIBIT 15.1EXHIBIT 15.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   1




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED BALANCE SHEETSAs of March 31, 2007 and December 31, 2006
    (In thousands, except par value data)
  March 31,


December 31,2007


2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents

$
355,432


$
326,002Marketable securities


8,321



9,743Accounts receivable, net


185,384



227,452Inventories, net


142,111



142,679Assets held for sale


11,441



49,104Prepaid expenses and other current
    assets


18,601



16,398Current deferred tax assets, net


84,107



8,071Income taxes


12,078



2,526Total current assets


817,475



781,975Property, plant and equipment, net


93,456



94,279Deferred tax assets, net


21,353



21,514Goodwill


80,162



80,162Intangible assets, net


490,918



474,315Other assets


48,402



52,966Assets of discontinued operations






226Total non-current assets


734,291



723,462$
1,551,766


$
1,505,437LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables

$
39,762


$
60,621Accrued liabilities


126,198



142,532Notes payable and current portion
    of long-term debt


2,908



9,237Current deferred tax liabilities,
    net


4,722



39,818Current liabilities for uncertain
    tax positions


80,413



Total current liabilities


254,003



252,208Long-term debt, less current portion


778,756



778,196Deferred tax liabilities, net


3,177



3,255Liabilities for uncertain tax
    positions


29,154



Other liabilities


18,004



18,182Liabilities of discontinued
    operations


18,112



18,343Total non-current liabilities


847,203



817,976Total liabilities


1,101,206



1,070,184Commitments and contingenciesStockholders Equity:Common stock, $0.01 par value;
    200,000 shares authorized; 94,786 (March 31,
    2007) and 94,416 (December 31, 2006) shares
    outstanding (after deducting shares in treasury of 1,094 as of
    March 31, 2007 and December 31, 2006)


949



945Additional capital


1,271,508



1,263,317Accumulated deficit


(841,460
)


(848,467
)Accumulated other comprehensive
    income


19,563



19,458Total stockholders equity


450,560



435,253$
1,551,766


$
1,505,437    2




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSFor the three months ended March 31, 2007 and 2006
    (Unaudited, in thousands, except per share data)
  Three Months EndedMarch 31,2007


2006Revenues:Product sales

$
176,892


$
181,400Alliance revenue (including
    ribavirin royalties)


36,470



18,091Total revenues


213,362



199,491Costs and expenses:Cost of goods sold (excluding
    amortization)


52,098



58,601Selling expenses


64,434



64,275General and administrative expenses


26,187



28,446Research and development costs


23,110



29,554Gain on litigation settlements






(34,000
)Restructuring charges and asset
    impairment


7,238



26,466Amortization expense


19,131



17,523Total costs and expenses


192,198



190,865Income from operations


21,164



8,626Other income, net, including
    translation and exchange


1,136



938Interest income


4,511



2,657Interest expense


(10,952
)


(10,437
)Income from continuing operations
    before income taxes


15,859



1,784Provision for income taxes


7,292



7,543Income (loss) from continuing
    operations


8,567



(5,759
)Income (loss) from discontinued
    operations


1



(212
)Net income (loss)

$
8,568


$
(5,971
)Basic and diluted income (loss)
    per share:Income (loss) from continuing
    operations

$
0.09


$
(0.06
)Income (loss) from discontinued
    operations






Basic and diluted net income
    (loss) per share:

$
0.09


$
(0.06
)Shares used in per share
    computations  Basic


94,574



92,770Shares used in per share
    computations  Diluted


96,012



92,770Dividends paid per share of common
    stock

$



$
0.08Dividends declared per share of
    common stock

$



$
0.08    3




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE
    INCOMEFor the three months ended March 31, 2007 and 2006
    (Unaudited, in thousands)
  Three Months EndedMarch 31,2007


2006Net income (loss)

$
8,568


$
(5,971
)Other comprehensive income (loss):Foreign currency translation
    adjustments


(116
)


2,346Unrealized gain on marketable
    equity securities and other


226



443Pension liability adjustment


(5
)


(32
)Comprehensive income (loss)

$
8,673


$
(3,214
)    4




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFor the three months ended March 31, 2007 and 2006
    (Unaudited, in thousands)
  Three Months EndedMarch 31,2007


2006Cash flows from operating
    activities:Net income (loss)

$
8,568


$
(5,971
)Income (loss) from discontinued
    operations


1



(212
)Income (loss) from continuing
    operations


8,567



(5,759
)Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Depreciation and amortization


23,195



23,482Provision for losses on accounts
    receivable and inventory


1,568



3,597Stock compensation expense


3,981



5,618Translation and exchange (gains)
    losses, net


(1,136
)


(937
)Impairment charges and other
    non-cash items


(447
)


20,378Deferred income taxes


31,910



5,577Changes in assets and liabilities,
    net of effects of acquisitions:Accounts receivable


41,517



13,778Inventories


(311
)


(3,736
)Prepaid expenses and other assets


(3,176
)


963Trade payables and accrued
    liabilities


(34,641
)


(10,513
)Income taxes payable


(44,373
)


(12,452
)Other liabilities


532



842Cash flow from operating
    activities in continuing operations


27,186



40,838Cash flow from operating
    activities in discontinued operations


(211
)


(281
)Net cash provided by operating
    activities


26,975



40,557Cash flows from investing
    activities:Capital expenditures


(4,566
)


(13,351
)Proceeds from sale of assets


38,493



135Proceeds from investments


8,631



2,260Purchase of investments


(6,800
)


(3,900
)Acquisition of businesses, license
    rights and product lines


(31,325
)


Cash flow from (used in) investing
    activities in continuing operations


4,433



(14,856
)Cash flow from investing
    activities in discontinued operations






(1
)Net cash provided by (used in)
    investing activities


4,433



(14,857
)Cash flows from financing
    activities:Payments on long-term debt and
    notes payable


(7,750
)


(157
)Proceeds from long-term debt


530



Stock option exercises and
    employee stock purchases


4,214



430Dividends paid






(7,173
)Net cash used in financing
    activities


(3,006
)


(6,900
)Effect of exchange rate changes on
    cash and cash equivalents


825



728Net increase in cash and cash
    equivalents


29,227



19,528Cash and cash equivalents at
    beginning of period


326,205



224,903Cash and cash equivalents at end
    of period


355,432



244,431Cash and cash equivalents
    classified as part of discontinued operations






(69
)Cash and cash equivalents of
    continuing operations

$
355,432


$
244,362    5




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  Form 10-K
  1.
    Organization
    and Summary of Significant Accounting Policies  Organization:
  Principles of Consolidation:
  Marketable Securities: available-for-sale
  Derivative Financial Instruments:
  Comprehensive Income: Reporting Comprehensive
    Income.
  Per Share Information:
  Stock-Based Compensation Expense: Share-Based
    Payment
   6




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Assets Held for Sale:
  Use of Estimates:
  Recent
    Accounting Pronouncements:
  FIN 48.
    SFAS No. 155.
  SFAS No. 157.
  SFAS 159. The Fair Value Option
    for Financial Assets and Financial Liabilities,
    (
 7




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    EITF
    06-3. No. 06-3, 06-3). 06-3 06-3 06-3
  Reclassifications:
  2.
    Restructuring         8




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
     Three Months





Three Months


CumulativeEnded


Year Ended


Ended


TotalMarch 31,


December 31,


March 31,


Incurred2006


2006


2007(In thousands)Employee severances (approximately
    480 employees)

$
6,644


$
16,997


$
3,781


$
20,778Contract cancellation and other
    cash costs






1,662



2,081



3,743Subtotal: cash charges


6,644



18,659



5,862



24,521Abandoned software and other
    capital assets


19,822



22,178







22,178Impairment of manufacturing and
    research facilities






97,344



1,376



98,720Subtotal: non-cash charges


19,822



119,522



1,376



120,898Total:

$
26,466


$
138,181


$
7,238


$
145,419       Three MonthsEnded


Three MonthsDecember 31,


Ended2006


March 31, 2007Opening accrual

$
4,453


$
5,216Charges to earnings


3,699



6,024Cash paid


(2,936
)


(5,309
)Closing accrual

$
5,216


$
5,931     3.
    Acquisitions  paid-up
 9




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Discontinued
    Operations      Three Months EndedMarch 31,2007


2006Revenue

$



$
Loss before income taxes

$




(243
)Income tax provision






Loss from discontinued operations,
    net






(243
)Income on disposal of discontinued
    operations


1



31Income tax provision






Income on disposal of discontinued
    operations, net






Income (loss) from discontinued
    operations

$
1


$
(212
)     March 31,


December 31,2007


2006Cash

$



$
203Accounts receivable, net






21Property, plant and equipment, net






Deferred taxes and other assets






2Assets of discontinued operations

$



$
226Accounts payable

$



$
Accrued liabilities


12,562



12,777Other liabilities


5,550



5,566Liabilities of discontinued
    operations

$
18,112


$
18,343    10




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Earnings
    Per Share    Three Months EndedMarch 31,2007


2006Income:Numerator for basic and dilutive
    earnings per shareIncome (loss) from continuing
    operations

$
8,567


$
(5,759
)Income (loss) from discontinued
    operations


1



(212
)Net income (loss)

$
8,568


$
(5,971
)Shares:Denominator for basic earnings per
    share  weighted-average shares outstanding


94,574



92,770Effect of dilutive securities:Employee stock options


1,232



Other dilutive securities


206



Dilutive potential common shares


1,438



Denominator for diluted earnings
    per share  adjusted weighted- average shares after
    assumed conversions


96,012



92,770Basic and diluted earnings (loss)
    per share:Income (loss) from continuing
    operations

$
0.09


$
(0.06
)Discontinued operations, net of
    taxes






Basic and diluted net income
    (loss) per share

$
0.09


$
(0.06
)      11




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Detail of
    Certain Accounts    March 31,


December 31,2007


2006Accounts receivable,
    net:Trade accounts receivable

$
152,347


$
180,767Royalties receivable


16,885



22,212Other receivables


23,637



31,486192,869



234,465Allowance for doubtful accounts


(7,485
)


(7,013
)$
185,384


$
227,452Inventories, net:Raw materials and supplies

$
36,193


$
37,045Work-in-process


23,146



21,477Finished goods


96,834



98,454156,173



156,976Allowance for inventory
    obsolescence


(14,062
)


(14,297
)$
142,111


$
142,679Property, plant and equipment,
    net:Property, plant, and equipment, at
    cost

$
184,986


$
183,794Accumulated depreciation and
    amortization


(91,530
)


(89,515
)$
93,456


$
94,279   Intangible assets:
  Weighted


March 31, 2007


December 31, 2006Average


Gross


Accumulated


Net


Gross


Accumulated


NetLives (Years)


Amount


Amortization


Amount


Amount


Amortization


AmountProduct rightsNeurology


13


$
301,546


$
(110,161
)

$
191,385


$
292,339


$
(100,990
)

$
191,349Infectious diseases


11



72,480



(11,760
)


60,720



72,480



(10,020
)


62,460Dematology


19



110,315



(45,217
)


65,098



85,337



(42,786
)


42,551Other products


11



325,899



(166,860
)


159,039



318,065



(157,620
)


160,445Total product rights


14



810,240



(333,998
)


476,242



768,221



(311,416
)


456,805License agreement


5



67,376



(52,700
)


14,676



67,376



(49,866
)


17,510Total intangible assets





$
877,616


$
(386,698
)

$
490,918


$
835,597


$
(361,282
)

$
474,315  12




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Scheduled Future Amortization Expense2007


2008


2009


2010


2011


ThereafterProduct rightsNeurology

$
21,680


$
28,765


$
28,623


$
27,706


$
21,933


$
63,120Infectious diseases


5,220



6,960



6,960



6,960



6,960



27,660Dermatology


7,494



9,992



9,990



9,982



9,877



17,902Other products


19,770



18,885



18,007



16,945



16,049



68,802Total product rights


54,164



64,602



63,580



61,593



54,819



177,484License agreement


8,504



6,172















Total

$
62,668


$
70,774


$
63,580


$
61,593


$
54,819


$
177,484     7.
    Income
    Taxes           13




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    non-U.S. subsidiaries
      8.
    Common
    Stock and Share Compensation   14




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
     WeightedAverageNumber of


ExerciseShares


PriceShares under option,
    December 31, 2005


14,632


$
17.80Granted


2,014


$
18.54Exercised


(1,592
)

$
19.38Canceled


(1,703
)

$
21.81Shares under option,
    December 31, 2006


13,351


$
18.28Granted


79


$
17.32Exercised


(347
)

$
17.32Canceled


(353
)

$
20.58Shares under option,
    March 31, 2007


12,730


$
18.41Exercisable at December 31,
    2005


7,197


$
17.82Exercisable at December 31,
    2006


8,374


$
18.00Exercisable at March 31, 2007


8,020


$
18.15Awards available for grant at
    December 31, 2006


4,376Awards available for grant at
    March 31, 2007


4,643     Outstanding


ExercisableWeighted





Weighted


WeightedAverage





Average


AverageNumber


Exercise


Number


Exercise


RemainingRange of Exercise Prices

of Shares


Price


of Shares


Price


Life (Years)$ 8.10 to $17.72


5,102


$
13.44



3,395


$
11.77



6.85$18.01 to $22.11


4,283


$
18.70



2,047


$
18.68



7.84$22.66 to $46.25


3,345


$
25.61



2,578


$
26.12



6.1812,730







8,020   SFAS No. 123(R) Assumptions and Fair
    Value:
  2007


2006Weighted-average life (years)


5.73



4.10-5.80Stock price volatility


36%-37%



37%-39%Expected dividend per share

$
0.00


$
0.00-$0.31Risk-free interest rate


4.52-4.70
%


4.54-4.80
%Weighted-average fair value of
    options

$
7.37


$
7.83    15




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    2003 Employee Stock Purchase Plan:
  Phantom Stock Awards:
    Recorded as


To be RecordedExpense Through


as Expense inMarch 31, 2007


Future PeriodsEmployee stock options

$
3,498


$
19,706Employee stock purchase plan


26



Phantom and restricted stock units


457



911Total stock-based compensation
    expense

$
3,981


$
20,617  16




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Three Months EndedMarch 31,2007


2006Cost of goods sold

$
190


$
434Selling expenses


993



854General and administrative expenses


2,493



3,532Research and development costs


305



798Total stock compensation expense

$
3,981


$
5,618     Remainder of 2007

$
11,1882008


6,1322009


2,5202010 and thereafter


777$
20,617   Dividends:
  9.
    Commitments
    and Contingencies    Securities
    Class Actions:
  Derivative Actions Related to Ribapharm
    Bonuses: James Herrig, IRA v. Milan
    Panic et al. and/or
  Paul Gerstley v. Norman
    Barker, Jr. et al.
   17




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
      SEC Investigation:
  Derivative Actions Related to Stock
    Options: Michael Pronko v.
    Timothy C. Tyson et al Kenneth
    Lawson v. Timothy C. Tyson et al. and/or Lawson Pronko Pronko
  Sherwood v. Tyson, et. al and/or
  Patent Oppositions:
   18




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Argentina Antitrust Matter:
  Permax Product Liability Cases:
  Kali Litigation: No. 76-843 ® No. 04-3238 No. 76-843
    Trademark Litigation:
 19




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Former ICN Yugoslavia Employees:
  Republic of Serbia Litigation:
  Xcel Pharmaceuticals:
  Other:
  10.
    Business
    Segments    
    North America, comprising the United States and Canada.
    International. The Latin America, Asia, and Australasia regions
    are now described as International.
    Europe, Middle East, and Africa (EMEA). 20




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
         Three Months Ended March 31,2007


2006RevenuesSpecialty pharmaceuticalsNorth America

$
71,570


$
75,856International


35,457



45,189EMEA


69,865



60,355Total specialty pharmaceuticals


176,892



181,400Alliance revenue (including
    Ribavirin royalties)


36,470



18,091Consolidated revenues

$
213,362


$
199,491Operating Income
    (Loss)Specialty pharmaceuticalsNorth America

$
16,747


$
23,136International


475



9,172EMEA


15,069



4,21632,291



36,524Corporate expenses(1)


(15,893
)


(23,142
)Total specialty pharmaceuticals


16,398



13,382Restructuring charges(2)


(7,238
)


(26,466
)Gain on litigation settlement






34,000Research and development


12,004



(12,290
)Consolidated segment operating
    income


21,164



8,626Interest income


4,511



2,657Interest expense


(10,952
)


(10,437
)Other, net


1,136



938Income from continuing operations
    before provision for income taxes and minority interest

$
15,859


$
1,784     (1)
    
    All stock-based compensation expense has been considered a
    corporate cost as management excludes this item in assessing the
    financial performance of individual business segments and
    considers it a function of valuation factors that pertain to
    overall corporate stock performance.(2)
    
    Restructuring charges are not included in the applicable
    segments as management excludes these items in assessing the
    financial performance of these segments, primarily due to their
    non-operational nature. 21




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    March 31,


December 31,Total Assets

2007


2006North America

$
442,341


$
457,503International


202,618



202,369EMEA


526,035



515,268Corporate


291,073



207,803Research and Development Division


89,699



122,268Discontinued operations






226Total

$
1,551,766


$
1,505,437     March 31,


December 31,Long-Term Assets

2007


2006North America

$
357,230


$
353,264International


74,344



58,763EMEA


202,549



201,003Corporate


68,191



75,101Research and Development Division


31,977



35,105Total

$
734,291


$
723,236  22




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Three Months EndedMarch 31,Therapeutic Area/Product

2007


2006NeurologyDiastat AcuDial(P)

$
11,072


$
12,022Mestinon(P)


10,551



9,817Cesamet(P)


5,912



3,303Librax


3,667



2,919Dalmane/Dalmadorm(P)


2,335



2,466Migranal(P)


3,036



3,115Tasmar(P)


1,982



1,185Melleril(P)


1,541



1,408Zelapar(P)


195



Other Neurology


15,592



14,692Total Neurology


55,883



50,927DermatologyEfudix/Efudex(P)


12,476



15,581Kinerase(P)


8,381



6,860Oxsoralen-Ultra(P)


3,883



3,508Dermatix(P)


2,773



1,834Other Dermatology


7,839



8,397Total Dermatology


35,352



36,180Infectious DiseaseInfergen(P)


8,970



13,705Virazole(P)


5,527



5,801Other Infectious Disease


5,159



4,731Total Infectious
    Disease


19,656



24,237Other Therapeutic
    ClassesSolcoseryl(P)


5,347



3,377Bisocard(P)


4,694



3,565Bedoyecta(P)


4,623



10,580MVI (multi-vitamin infusion)(P)


2,493



2,267Protamin(P)


2,071



1,552Espaven(P)


1,867



1,302Nyal(P)


1,763



1,754Other products


43,143



45,659Total Other therapeutic classes


66,001



70,056Total product sales

$
176,892


$
181,400Total promoted product sales

$
101,492


$
105,002     (P)
    
    Promoted Products represent products promoted in at least one
    major territory with estimated global annual sales greater than
    $5 million. 23




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
     11.
    Alliance
    Revenue    For the Three Months EndedMarch 31,2007


2006Ribavirin royalty

$
17,220


$
18,091Licensing payment


19,200



Other


50



Total alliance revenue

$
36,470


$
18,091    24




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations      Specialty
    Pharmaceuticals
    Clinical
    Development
    Alliance
    Revenues
   25




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##### Table of Contents



Company
    Strategy and Restructuring
    Targeted Growth Opportunities.
  Product Acquisitions.
  Efficient Manufacturing and Supply Chain
    Organization.
  Clinical Development Activities.
  Results
    of Operations
   26




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##### Table of Contents



Three Months EndedMarch 31,


Increase/


Percent2007


2006


(Decrease)


ChangeRevenuesSpecialty pharmaceuticalsNorth America

$
71,570


$
75,856


$
(4,286
)


(6
)%International


35,457



45,189



(9,732
)


(22
)%EMEA


69,865



60,355



9,510



16
%Total specialty pharmaceuticals


176,892



181,400



(4,508
)


(2
)%Alliance revenue (including
    Ribavirin royalties)


36,470



18,091



18,379



102
%Total revenues


213,362



199,491



13,871



7
%Costs and ExpensesCosts of goods sold (excluding
    amortization)


52,098



58,601



(6,503
)


(11
)%Selling expenses


64,434



64,275



159



0
%General and administrative expenses


26,187



28,446



(2,259
)


(8
)%Research and development costs


23,110



29,554



(6,444
)


(22
)%Gain on litigation settlement
    settlement






(34,000
)Restructuring charges and asset
    impairment


7,238



26,466



(19,228
)


(73
)%Amortization expense


19,131



17,523



1,608



9
%Operating income (loss)

$
21,164


$
8,626


$
12,538



145
%Gross profit on product sales
    (excluding amortization)

$
124,794


$
122,799Gross margin


71
%


68
%        27




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##### Table of Contents



Alliance Revenue (including Ribavirin
    royalties):
  Gross Profit Margin (excluding
    amortization): paid-up
  Selling Expenses:
  General and Administrative Expenses:
  Research and Development:
  Gain on Litigation Settlement:
 28




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##### Table of Contents



Restructuring
    Charges:
        Restructuring
    Charge Details (in thousands)
  Three Months


Year


Three MonthsEnded


Ended


Ended


Cumulative


EstimatedMarch 31,


December 31,


March 31,


Total


Total Upon2006


2006


2007


Incurred


CompletionEmployee Severances (approximately
    480 employees)

$
6,644


$
16,997


$
3,781


$
20,778


$
20,000-$23,000Contract cancellation and other
    cash costs






1,662



2,081



3,743


$
3,000-$5,000Subtotal: Cash Charges


6,644



18,659



5,862



24,521


$
23,000-$28,000Abandoned software and other
    capital assets


19,822



22,178







22,178


$
22,000-$23,000Impairment of manufacturing and
    research facilities






97,344



1,376



98,720


$
100,000-$104,000Subtotal: Non-cash charges


19,822



119,522



1,376



120,898


$
122,000-$127,000Total:

$
26,466


$
138,181


$
7,238


$
145,419


$
145,000-$155,000   Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
    Three MonthsEnded


Three MonthsDecember 31,


Ended2006


March 31, 2007Opening accrual

$
4,453


$
5,216Charges to earnings


3,699



6,024Cash paid


(2,936
)


(5,309
)Closing accrual

$
5,216


$
5,931  29




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##### Table of Contents



Amortization:
  Other Income (expense), Net, Including Translation and
    Exchange:
  Interest Expense, net:
  Income Taxes:
  Income from Discontinued Operations, Net of
    Taxes:
  Liquidity
    and Capital Resources
       30




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##### Table of Contents



Off-Balance
    Sheet Arrangements
  Form 10-K.
  Products
    in Development
  Late
    Stage Development of New Chemical Entities
  Taribavirin:
     31




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##### Table of Contents



38-40 percent
  12-week
    Retigabine: End-of-Phase 2
        Pradefovir: once-a-day
   32




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##### Table of Contents



24-month Schering-Plough,
  Other
    Development Activities
  Infergen:
  24-week 48-week end-of-treatment end-of-treatment
  follow-up
  24-week
    Cesamet:
 33




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##### Table of Contents



Foreign
    Operations
    Critical
    Accounting Estimates
      Revenue
    Recognition
           34




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##### Table of Contents



ordinary-course-of-business
  Income
    Taxes
      Impairment
    of Property, Plant and Equipment
   35




---



##### Table of Contents



Valuation
    of Intangible Assets
        Stock-based
    Compensation Expense
      2007

2006Weighted-average life (years)

5.73

4.10 - 5.80Stock price volatility

36% - 37%

37% - 39%Expected dividend per share

$0.00

$0.00 - $0.31Risk-free interest rate

4.52 - 4.70%

4.54 - 4.80%Weighted-average fair value of
    options (per share)

$7.37

$7.83      36




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##### Table of Contents



Contingencies
    Other
    Financial Information
    Forward-Looking
    Statements
  Form 10-Q Form 10-Q,
    
    The future growth of our business depends on the development and
    approval of new products by us and our licensees, including
    taribavirin, pradefovir and retigabine. The process of
    developing new drugs has an inherent risk of failure. For
    example, product candidates may turn out to be ineffective or
    unsafe in clinical testing; their patent protection may become
    compromised; other therapies may prove safer or more effective;
    or the prevalence of the disease for which they are being
    developed may decrease. Our inability to develop our products
    due to these or other factors could have a material adverse
    effect on future revenues.
    We can protect our products from generic substitution by third
    parties only to the extent that our technologies are covered by
    valid and enforceable patents, are effectively maintained as
    trade secrets or are protected by data exclusivity. However, our
    pending or future patent applications may not issue as patents.
    Any patent issued may be challenged, invalidated, held
    unenforceable or circumvented. Furthermore, our patents may not
    be sufficiently broad to prevent third parties competing
    products. The expiration of patent protection for 37




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##### Table of Contents



ribavirin has resulted in significant competition from generic
    substitutes and declining royalty revenues and may negatively
    impact future financial results.  
    Trade secret protection is less effective than patent protection
    because competitors may discover our technology or develop
    parallel technology.
    The scope of protection afforded by a patent can be highly
    uncertain. A pending claim or a result unfavorable to us in a
    patent dispute may preclude development or commercialization of
    products or impact sales of existing products, result in
    cessation of royalty payments to us
    and/or
    result in payment of monetary damages.
    Obtaining drug approval in the United States and other countries
    is costly and time consuming. Uncertainties and delays inherent
    in the process can preclude or delay development and
    commercialization of our products.
    Our current business plan includes targeted expansion through
    acquisitions of compatible businesses and product lines and the
    formation of strategic alliances, joint ventures and other
    business combinations, in addition to the development of new
    products. If we are unable to successfully execute on our
    expansion plans to find attractive acquisition candidates at
    appropriate prices, and to integrate successfully any acquired
    companies or products, the expected growth of our business may
    be negatively affected.
    We and our competitors are always striving to develop products
    that are more effective, safer, more easily tolerated or less
    costly. If our competitors succeed in developing better
    alternatives to our current products before we do, we will lose
    sales and revenues to their alternative products. If vaccines
    are introduced to prevent the diseases treated by our products,
    our potential sales and revenues will decrease.
    The pharmaceutical industry is subject to substantial government
    regulation, including the approval of new pharmaceutical
    products, labeling, advertising and, in most countries, pricing,
    as well as inspection and approval of manufacturing facilities.
    The costs of complying with these regulations are high, and
    failure to comply could result in fines or interruption in our
    business.
    We collect and pay a substantial portion of our sales and
    expenditures in currencies other than the U.S. dollar. As a
    result, fluctuations in foreign currency exchange rates affect
    our operating results. Additionally, future exchange rate
    movements, inflation or other related factors may have a
    material adverse effect on our sales, gross profit or operating
    expenses. At March 31, 2007 we have in place foreign
    currency hedge transactions to reduce our exposure to
    variability in the Polish Zloty. We continue to evaluate the
    possibility of entering into additional hedge arrangements.
    A significant part of our revenue is derived from products
    manufactured by third parties. We rely on their quality level,
    compliance with the FDA regulations or similar regulatory
    requirements enforced by regulatory agencies in other countries
    and continuity of supply. Any failure by them in these areas
    could disrupt our product supply and negatively impact our
    revenues.
    Our flexibility in maximizing commercialization opportunities
    for our compounds may be limited by our obligations to
    Schering-Plough. In November 2000, we entered into an agreement
    that provides Schering-Plough with an option to acquire the
    rights to up to three of our products intended to treat
    hepatitis C that Schering-Plough designates prior to our
    entering Phase 2 clinical trials and a right for first/last
    refusal to license various compounds we may develop and elect to
    license to others. Taribavirin was not subject to the option of
    Schering-Plough, but it would be subject to their right of
    first/last refusal if we elected to license it to a third party.
    The interest of potential collaborators in obtaining rights to
    our compounds or the terms of any agreement we ultimately enter
    into for these rights may be hindered by our agreement with
    Schering-Plough.
    To purchase our products, many patients rely on reimbursement by
    third party payors such as insurance companies, HMOs and
    government agencies. These third party payors are increasingly
    attempting to contain costs by limiting both coverage and the
    level of reimbursement of new drug products. The reimbursement
    levels established by third party payors in the future may not
    be sufficient for us to realize an appropriate return on our
    investment in product development and our continued manufacture
    and sale of existing drugs. 38




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##### Table of Contents




    All drugs have potential harmful side effects and can expose
    drug manufacturers and distributors to liability. In the event
    one or more of our products is found to have harmed an
    individual or individuals, we may be responsible for paying all
    or substantially all damages awarded. A successful product
    liability claim against us could have a material negative impact
    on our financial position and results of operations.
    Our debt agreements permit us to incur additional debt, subject
    to certain restrictions, but there is no guaranty that we will
    actually be able to borrow any money should the need for it
    arise.
    We are involved in several legal proceedings, including those
    described in Note 9 to notes to consolidated condensed
    financial statements, any of which could result in substantial
    cost and divert managements attention and resources.
    Our stockholder rights plan, provisions of our certificate of
    incorporation and provisions of the Delaware General Corporation
    Law could provide our Board of Directors with the ability to
    deter hostile takeovers or delay, deter or prevent a change in
    control of our company, including transactions in which
    stockholders might otherwise receive a premium for their shares
    over then current market prices.
    We are authorized to issue, without stockholder approval,
    approximately 10,000,000 shares of preferred stock,
    200,000,000 shares of common stock and securities
    convertible into either shares of common stock or preferred
    stock. If we issue additional equity securities, the price of
    our securities may be materially and adversely affected. The
    Board of Directors can also use issuances of preferred or common
    stock to deter a hostile takeover or change in control of our
    company.
    We are subject to a consent order with the Securities and
    Exchange Commission, which permanently enjoins us from violating
    securities laws and regulations. The consent order also
    precludes protection for forward-looking statements under the
    safe harbor provisions of the Private Securities Litigation
    Reform Act of 1995 with respect to forward-looking statements we
    made prior to November 28, 2005. The existence of the
    permanent injunction under the consent order, and the lack of
    protection under the safe harbor with respect to forward-looking
    statements made prior to November 28, 2005 may limit our
    ability to defend against future allegations.  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      Notional/


Assets (Liabilities)Contract


Carrying


FairDescription

Amount


Value


ValueForward contracts

$
114,000


$
(434
)

$
(434
)Interest rate swaps


150,000



(3,681
)


(3,681
)Outstanding debt


780,000



(780,000
)


(724,000
)    39




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##### Table of Contents



Item 4.
    Controls
    and Procedures    Rule 13a-15(c)
   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings   Item 1A.  Risk
    Factors  Form 10-K Form 10-Q, Form 10-K. Form 10-K Form 10-Q.
  If we,
    our partners or licensees cannot successfully develop or obtain
    future products and commercialize those products, our growth
    would be delayed.
   40




---



##### Table of Contents



The
    pending SEC investigation could adversely affect our business
    and the trading price of our securities.
   41




---



##### Table of Contents



Item 6.
    Exhibits  (a)
    Exhibits  Exhibit3
.1

Restated Certificate of
    Incorporation, as amended to date, previously filed as
    Exhibit 3.1 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 2003, which is
    incorporated herein by reference.3
.2

Certificate of Designation,
    Preferences and Rights of Series A Participating Preferred
    Stock previously filed as Exhibit 3.1 to the
    Registrants Current Report on
    Form 8-K,
    dated October 6, 2004, which is incorporated herein by
    reference.3
.3

Amended and Restated Bylaws of the
    Registrant previously filed as Exhibit 3.1 to the
    Registrants Current Report on
    Form 8-K,
    dated November 6, 2006, which is incorporated herein by
    reference.10
.1

Description of Registrants
    Executive Incentive Plan, previously filed as Item 5.02 in
    the Registrants Current Report on
    Form 8-K,
    dated March 28, 2007, which is incorporated herein by
    reference.15
.1

Review Report of Independent
    Registered Public Accounting Firm.15
.2

Awareness Letter of Independent
    Registered Public Accounting Firm.31
.1

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    under the Exchange Act and Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    under the Exchange Act and Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive
    Officer and Chief Financial Officer of Periodic Financial
    Reports pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, 18 U.S.C. § 1350.  42




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##### Table of Contents



SIGNATURES  Form 10-Q
  Valeant Pharmaceuticals
    International
   Timothy
    C. Tyson
    President and Chief Executive Officer
    Peter
    J. Blott
   Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
   43




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##### Table of Contents



EXHIBIT INDEX
  Exhibit3
.1

Restated Certificate of
    Incorporation, as amended to date, previously filed as
    Exhibit 3.1 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 2003, which is
    incorporated herein by reference.3
.2

Certificate of Designation,
    Preferences and Rights of Series A Participating Preferred
    Stock previously filed as Exhibit 3.1 to the
    Registrants Current Report on
    Form 8-K,
    dated October 6, 2004, which is incorporated herein by
    reference.3
.3

Amended and Restated Bylaws of the
    Registrant previously filed as Exhibit 3.1 to the
    Registrants Current Report on
    Form 8-K,
    dated November 6, 2006, which is incorporated herein by
    reference.10
.1

Description of Registrants
    Executive Incentive Plan, previously filed as Item 5.02 in
    the Registrants Current Report on
    Form 8-K,
    dated March 28, 2007, which is incorporated herein by
    reference.15
.1

Review Report of Independent
    Registered Public Accounting Firm.15
.2

Awareness Letter of Independent
    Registered Public Accounting Firm.31
.1

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    under the Exchange Act and Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    under the Exchange Act and Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive
    Officer and Chief Financial Officer of Periodic Financial
    Reports pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, 18 U.S.C. § 1350.  44