##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
       Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 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
    incorporation or organization)

(I.R.S. Employer
    Identification No.)One Enterprise, Aliso Viejo, California

92656(Address of principal executive
    offices)

(Zip
    Code)   Registrants telephone number, including area code:
 (949) 461-6000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, $.01 par value (Including
    associated preferred stock purchase rights)

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
      þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TABLE OF
    CONTENTS
  PagePART IForward-Looking Statements


4Item 1.


Business


4Item 1A.


Risk Factors


16Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


23Item 3.


Legal Proceedings


23Item 4.


Submission of Matters to a Vote of Security
    Holders


23PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


24Item 6.


Selected Financial Data


26Item 7.


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


33Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


56Item 8.


Financial Statements and Supplementary Data


58Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


116Item 9A.


Controls and Procedures


116Item 9B.


Other Information


118PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


119Item 11.


Executive Compensation


119Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


119Item 13.


Certain Relationships and Related Transactions


119Item 14.


Principal Accounting Fees and Services


119PART IVItem 15.


Exhibits and Financial Statement Schedules


120EXHIBIT 10.27EXHIBIT 10.28EXHIBIT 10.32EXHIBIT 21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32   1




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Explanatory
    Note
  Form 10-K
  Form 8-K Form 10-K,
        Accounting for Pensions , Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
      2




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Nine Months

















TotalEnded

















AdditionalSeptember 30,


Year Ended December 31,





IncomeIncome (Expense)

2007


2006


2005


2004


2003


Pre-2003


(Expense)(In thousands)Returns reserve and credit memos in Latin America

$
(1,120
)

$
(1,554
)

$
(371
)

$
1,389


$
(121
)

$
(3,423
)

$
(5,200
)Reversal of revenue in Italy


(1,550
)


(290
)


















(1,840
)Cost of goods bookkeeping in the UK and France


4,710























4,710European pension accounting


(279
)


1,401



(256
)


(220
)


391



(797
)


240Total impact before taxes


1,761



(443
)


(627
)


1,169



270



(4,220
)


(2,090
)Tax effect on above


(611
)


204



139



(422
)


(87
)


1,497



720Other deferred tax items






(764
)


(61
)














(825
)Total impact of restatement

$
1,150


$
(1,003
)

$
(549
)

$
747


$
183


$
(2,723
)

$
(2,195
)     Form 10-Q
  Identification
    of Material Weakness
  Form 10-K,
 3




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##### Table of Contents



Forward-Looking
    Statements       PART I  Item 1.
    Business  Introduction
      Strategic
    Review and Restructuring
     4




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Accounting for the Impairment
    or Disposal of Long-Lived Assets
    www.valeant.com Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330. www.sec.gov
  Retigabine 
    RESTORE 1 Data Announcement
  Products in
    Development
  Taribavirin 
    12-week analysis of the Phase IIb study
  Products in Development
  Infergen
    (Reported in Discontinued Operations)
  Accounting for the Impairment or Disposal of Long-Lived
    Assets
 5




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Ribavirin
    Royalties
       6




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##### Table of Contents



% Increase (Decrease)Therapeutic Class/Product

2007


2006


2005


07/06


06/05(Restated)


(Restated)NeurologyMestinon(P)

$
53,012


$
47,625


$
43,535



11
%


9
%Diastat AcuDial(P)


51,264



50,678



47,631



1
%


6
%Cesamet(P)


30,173



18,985



10,009



59
%


90
%Librax


17,170



14,835



18,159



16
%


(18
)%Migranal(P)


13,534



11,592



12,949



17
%


(10
)%Dalmane/Dalmadorm(P)


11,432



10,957



12,277



4
%


(11
)%Tasmar(P)


10,262



6,534



5,829



57
%


12
%Melleril(P)


8,206



6,431



3,068



28
%


110
%Zelapar(P)


5,747



3,981







44
%


NMOther Neurology


66,677



63,033



57,431



6
%


10
%Total Neurology


267,477



234,651



210,888



14
%


11
%DermatologyEfudix/Efudex(P)


71,714



78,336



60,177



(8
)%


30
%Kinerase(P)


30,126



28,929



22,265



4
%


30
%Dermatix(P)


14,043



10,139



9,187



39
%


10
%Oxsoralen-Ultra(P)


12,377



10,527



9,365



18
%


12
%Other Dermatology


39,059



42,023



38,252



(7
)%


10
%Total Dermatology


167,319



169,954



139,246



(2
)%


22
%Infectious DiseaseVirazole(P)


14,350



16,552



16,547



(13
)%


0
%Other Infectious Disease


19,813



20,144



21,459



(2
)%


(6
)%Total Infectious Disease


34,163



36,696



38,006



(7
)%


(3
)%Other therapeutic classesBedoyecta(P)


42,384



49,935



46,762



(15
)%


7
%Solcoseryl(P)


23,749



18,916



18,983



26
%


(0
)%Bisocard(P)


22,559



15,927



12,847



42
%


24
%M.V. I. (multi-vitamin infusion)(P)


11,708



13,350



7,602



(12
)%


76
%Nyal(P)


11,060



10,216



13,747



8
%


(26
)%Espaven(P)


8,458



11,147



9,258



(24
)%


20
%Protamin(P)


6,924



6,384



6,047



8
%


6
%Other products


189,969



214,386



228,483



(11
)%


(6
)%Total other therapeutic classes


316,811



340,261



343,729



(7
)%


(1
)%Total product sales

$
785,770


$
781,562


$
731,869



1
%


7
%Total Promoted Product sales

$
453,082


$
427,141


$
368,085



6
%


16
%     (P) 
    Promoted Products with annualized sales greater than $5,000,000.   7




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Neurology
    Diastat/Diastat AcuDial
    
    Diastat and Diastat AcuDial are gel formulations of diazepam
    administered rectally in the management of selected, refractory
    patients with epilepsy, who require intermittent use of diazepam
    to control bouts of increased seizure activity. Diastat and
    Diastat AcuDial are the only products approved by the Food and
    Drug Administration (FDA) for treatment of such
    conditions outside of hospital situations. We acquired the
    rights to Diastat and Diastat AcuDial as part of the Xcel
    acquisition (see Acquisitions).Mestinon
    
    Mestinon is an orally active cholinesterase inhibitor used in
    the treatment of myasthenia gravis, a chronic neuromuscular,
    autoimmune disorder that causes varying degrees of fatigable
    weakness involving the voluntary muscles of the body.Cesamet
    
    Cesamet is a synthetic cannabinoid. It is indicated for the
    management of severe nausea and vomiting associated with cancer
    chemotherapy.Librax
    
    Librax is a combination within a single capsule formulation of
    the antianxiety action of Librium and the
    anticholinergic/spasmolytic effects of Quarzan. It is used as
    adjunctive therapy in the treatment of peptic ulcer and in the
    treatment of irritable bowel syndrome (irritable colon, spastic
    colon, mucous colitis) and acute enterocolitis.Dalmane/Dalmadorm
    
    Dalmane/Dalmadorm is a sedative/anxiolytic indicated for the
    treatment of insomnia and anxiety.Migranal
    
    Migranal is a nasal spray indicated for the treatment of acute
    migraine headaches. We acquired the rights to Migranal as part
    of the Xcel acquisition (see Acquisitions).Tasmar
    
    Tasmar is used in the treatment of Parkinsons disease as
    an adjunct to levodopa/carbidopa therapy. We acquired the global
    rights to Tasmar from F. Hoffmann-La Roche in 2004.Melleril
    
    Melleril is used in the treatment of schizophrenia. We acquired
    the rights to Melleril in Brazil and Argentina from Novartis.Zelapar
    
    Zelapar is a once-daily adjunct therapy for Parkinsons
    disease patients being treated with levodopa/carbidopa who
    exhibit deterioration in the quality of their response to this
    therapy. We acquired the U.S. rights to Zelapar in our
    acquisition of Amarin Pharmaceuticals in 2004 and licensed the
    marketing rights in certain additional countries in 2006. 8




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Dermatology
    Efudex/Efudix
    
    Efudex/Efudix is indicated for the treatment of multiple actinic
    or solar keratoses and superficial basal cell carcinoma. It is
    sold as a topical solution and cream, and provides effective
    therapy for multiple lesions.Kinerase
    
    Kinerase is a range of science-based, over-the-counter cosmetic
    products that helps skin look smoother, younger and healthier.
    Kinerase contains the synthetic plant growth factor
    N6-furfuryladenine which has been shown to slow the changes that
    naturally occur in the cell aging process in plants. Kinerase
    helps to diminish the appearance of fine lines and wrinkles.Oxsoralen-Ultra
    
    Oxsoralen-Ultra is indicated for the treatment of severe
    psoriasis and mycosis fungoides and is used along with
    ultraviolet light radiation.Dermatix
    
    Dermatix is used to flatten and soften scars, to reduce
    scar-associated discoloration in old or new scars and to prevent
    abnormal scar formation.  Infectious
    Disease
    Virazole
    
    Virazole is our brand name for ribavirin, a synthetic nucleoside
    with antiviral activity. It is indicated for the treatment of
    hospitalized infants and young children with severe lower
    respiratory tract infections due to respiratory syncytial virus.
    Virazole has also been approved for various other indications in
    countries outside the United States including herpes zoster,
    genital herpes, chickenpox, hemorrhagic fever with renal
    syndrome, measles and influenza.  Other
    therapeutic classes
    Bedoyecta
    
    Bedoyecta is a brand of vitamin B complex (B1, B6 and B12
    vitamins) products. Bedoyecta products act as energy improvement
    agents for fatigue related to age or chronic diseases, and as
    nervous system maintenance agents to treat neurotic pain and
    neuropathy.Solcoseryl
    
    Solcoseryl is a line of products used for treating dry wounds,
    minor injuries, venous ulcers and chilblain.Bisocard
    
    Bisocard is a Beta-blocker. It is indicated to treat
    hypertension and angina pectoris.M.V.I.
    
    M.V.I., multi-vitamin infusion, is a hospital dietary supplement
    used in treating trauma and burns. 9




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Nyal
    
    Nyal is an over-the-counter line of products covering various
    non-steroidal anti-inflammatory agents, analgesics and
    antipyretics. Nyal products are used to treat coughs, colds and
    associated symptoms.Espaven
    
    Espaven is a digestion improvement and anti-flatulent agent. It
    is most often used by pediatricians in infant dyspepsia syndrome.Protamin
    
    Protamin is used to neutralize heparin.  Acquisitions
  paid-up
    Accounting for the
    Impairment or Disposal of Long-Lived Assets
      Research
    and Development
       10




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Products
    Under Development
  Late
    Stage Development of New Chemical Entities
  Retigabine:
    Products in
    Development
      Taribavirin:
    38-40%
 11




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Products in Development
    Other
    Development Activities
  Diastat Intranasal:
  Licenses
    and Patents (Proprietary Rights)
  Data
    and Patent Exclusivity
         12




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Exclusivity
    Rights with Respect to Retigabine and Taribavirin
        Exclusivity
    with Respect to Ribavirin
      Government
    Regulations
       13




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Environmental
    Regulation
    Marketing
    and Customers
    Competition
      
    Eisais rufinamide, which has been submitted to the FDA for
    review for the treatment of partial onset epilepsy and
    Lennox-Gastaut Syndrome (LGS), having received European approval
    for the treatment of LGS in January 2007, and
    UCBs lacosamide (previously Schwarz) filed for approval
    with the EMEA and FDA in 2007. Extended release versions of
    approved anti-epileptic drugs (AEDs) have been filed and
    currently under review include include Lamictal aXR by GSK and
    Keppra XR by UCB.
    AEDs in Phase III development for the treatment of epilepsy
    include carisbamate by Ortho-McNeil, Inc. and brivaracetam by
    UCB. There are many AEDs in Phase II development for the
    treatment of epilepsy.    
    Interferons or immunomodulators being developed by
    Novartis/Human Genome Sciences, Inc., Intarcia Therapeutics,
    Inc., Anadys, and SciClone Pharmaceuticals, Inc.;
    IMPDH inhibitors being developed by Roche and Vertex
    Pharmaceuticals Incorporated; and
    Protease or polymerase inhibitors being developed by InterMune,
    Vertex Pharmaceuticals Incorporated/Johnson & Johnson,
    Schering-Plough, Novartis A.G., Wyeth/Viropharma Inc. and Idenix
    Pharmaceuticals, Inc.     14




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Manufacturing
            Employees
    Product
    Liability Insurance
    Foreign
    Operations
   15




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Item 1A:
    Risk
    Factors  Form 10-K.
  The
    results from our first Phase III study for retigabine may
    not be predictive of results from our second Phase III
    study for retigabine.
  Products in Development
  The
    results from the initial 12 weeks of our Phase IIb study
    for taribavirin may not be predictive of the final results of
    the Phase IIb study or of any subsequent clinical trial
    necessary for approval of taribavirin.
  Products in Development
  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/or and/or
  If we,
    our partners or licensees cannot successfully develop or obtain
    future products and commercialize those products, our growth
    would be delayed.
   16




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We
    have identified a material weakness in our internal control over
    financial reporting that could adversely affect our stock price
    and ability to prepare complete and accurate financial
    statements in a timely manner.
  Form 10-K.
    The
    current SEC investigation could adversely affect our business
    and the trading price of our securities.
   17




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Third
    parties may be able to sell generic forms of our products or
    block the sales of our products if our intellectual property
    rights or data exclusivity rights do not sufficiently protect
    us; patent rights of third parties may also be asserted against
    us.
  and/or
  and/or
        Products
    representing a significant amount of our revenue are not
    protected by patent or data exclusivity rights.
    If
    retigabine and taribavirin do not become approved and
    commercially successful products, our ability to generate future
    growth in revenue and earnings will be adversely
    affected.
   18




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We are
    subject to uncertainty related to health care reform measures
    and reimbursement policies.
    We are
    subject to price control restrictions on our pharmaceutical
    products in the majority of countries in which we
    operate.
    The
    matters relating to the Special Committees review of our
    historical stock option granting practices and the restatement
    of our consolidated financial statements have resulted in
    increased litigation and regulatory proceedings against us and
    could have a material adverse effect on us.
  Form 10-K Form 10-Q
   19




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If
    competitors develop vaccines or more effective or less costly
    drugs for our target indications, our business could be
    seriously harmed.
    Obtaining
    necessary government approvals is time consuming and not
    assured.
      If we
    or our third-party manufacturers are unable to manufacture our
    products or the manufacturing process is interrupted due to
    failure to comply with regulations or for other reasons, the
    manufacture of our products could be interrupted.
       20




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Many
    of our key processes, opportunities and expenses are a function
    of existing national and/or local government regulation.
    Significant changes in regulations could have a material adverse
    impact on our business.
    and/or
    Our
    business, financial condition and results of operations are
    subject to risks arising from the international scope of our
    operations.
    
    difficulties and costs of staffing, severance and benefit
    payments and managing international operations;
    exchange controls, currency restrictions and exchange rate
    fluctuations;
    unexpected changes in regulatory requirements;
    the burden of complying with multiple and potentially
    conflicting laws;
    the geographic, time zone, language and cultural differences
    between personnel in different areas of the world;
    market share and product sales in certain markets being
    dependent on actions by and relationships with key distributors;
    greater difficulty in collecting accounts receivables in and
    moving cash out of certain geographic regions;
    the need for a significant amount of available cash from
    operations to fund our business in a number of geographic and
    economically diverse locations; and
    political, social and economic instability in emerging markets
    in which we currently operate.   21




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Cash
    earned by our foreign subsidiaries is held at those subsidiaries
    and transferring that cash to the United States would likely
    have a negative impact on our earnings.
  non-U.S. assets.
      We are
    involved in various legal proceedings that could adversely
    affect us.
    Existing
    and future audits by, or other disputes with, taxing authorities
    may not be resolved in our favor.
    Difficulties
    in completing, financing and integrating acquisitions could have
    a material adverse impact on our future growth.
    Due to
    the large portion of our business conducted outside the United
    States, we have significant foreign currency risk.
    Our
    stockholder rights plan and anti-takeover provisions of our
    charter documents could provide our board of directors with the
    ability to delay or prevent a change in control of
    us.
   22




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We are
    subject to a consent order with the Securities and Exchange
    Commission.
    We are
    subject to fraud and abuse and similar laws and
    regulations, and a failure to comply with such regulations or
    prevail in any litigation related to noncompliance could harm
    our business.
    If we
    do not realize the expected benefits from our restructuring
    plans, our business prospects may suffer and our operating
    results and financial condition would be adversely
    affected.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Owned or


SquareLocation

Purpose

Leased


FootageNorth AmericaAliso Viejo, California

Corporate headquarters


Leased



109,948Montreal, Canada

Offices and manufacturing facility


Owned



94,119Latin AmericaMexico City, Mexico

Offices and manufacturing facility


Owned



286,411EuropeRzeszow, Poland

Offices and manufacturing facility


Owned



446,661     Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   23




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
      2007


2006Fiscal Quarters

High


Low


High


LowFirst

$
18.06


$
16.65


$
19.77


$
15.85Second

$
18.69


$
15.44


$
18.20


$
16.06Third

$
17.61


$
15.48


$
20.46


$
15.81Fourth

$
15.79


$
10.65


$
20.34


$
16.32   Performance
    Graph
    
  Based on
    reinvestment of $100 beginning on December 31,
    2002
  Dec-02


Dec-03


Dec-04


Dec-05


Dec-06


Dec-07Valeant Pharmaceuticals International



100




236




251




175




169




117S&P Mid Cap 400 Index



100




134




154




172




187




200Custom Composite Index



100




133




122




149




172




150  24




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Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
  24-month
    ApproximateDollar ValueTotal Number


Average





of Shares thatof Shares


Price Paid


Aggregate


May Yet BePeriod

Purchased


Per Share


Consideration


Purchased(In thousands)


(In thousands)6/1/07  6/30/07


1,600,000


$
17.17


$
27,507


$
172,4937/1/07  7/31/07


2,100,000


$
16.95


$
63,137


$
136,8638/1/07  8/31/07


1,022,600


$
16.08


$
79,599


$
120,4019/1/07  10/31/07


0



NM


$
79,599


$
120,40111/1/07  11/30/07


1,598,090


$
11.24


$
97,590


$
102,41012/1/07  12/31/07


170,000


$
11.55


$
99,557


$
100,443Total Share Repurchases


6,490,690


$
15.32


$
99,557


$
100,443       Dividend
    Policy
   25




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K.
    Year ended December 31,2007


2006


2005


2004


2003(Restated)


(Restated)


(Restated)


(Restated)(In thousands except per share data)Revenues:Product sales

$
785,770


$
781,562


$
731,869


$
609,212


$
518,477Alliance revenue (including ribavirin royalties)(1)


86,452



81,242



91,646



76,427



167,482Total revenues


872,222



862,804



823,515



685,639



685,959Costs and expenses:Cost of goods sold (excluding amortization)


233,094



238,141



222,358



200,543



184,704Selling expenses


259,324



244,757



232,316



196,642



166,740General and administrative expenses


111,721



114,583



108,508



99,662



111,244Research and development costs


98,025



105,442



114,100



92,858



45,344Acquired in-process research and development(2)










126,399



11,770



117,609Gain on litigation settlements(3)






(51,550
)










Restructuring charges and asset impairment(4)


23,176



138,181



1,253



19,344



Amortization expense


71,567



65,276



68,832



59,303



38,577Total costs and expenses


796,907



854,830



873,766



680,122



664,218Income (loss) from operations


75,315



7,974



(50,251
)


5,517



21,741Other income (loss), net including translation and exchange


1,060



1,152



(6,358
)


141



4,727Loss on early extinguishment of debt(5)














(19,892
)


(12,803
)Interest income


17,792



12,610



13,169



12,432



8,888Interest expense


(42,878
)


(43,726
)


(40,326
)


(49,265
)


(36,145
)Income (loss) from continuing operations before income taxes and
    minority interest


51,289



(21,990
)


(83,766
)


(51,067
)


(13,592
)Provision for income taxes(6)


25,233



34,824



55,073



69,062



41,335Minority interest


2



3



287



233



11,763Income (loss) from continuing operations


26,054



(56,817
)


(139,126
)


(120,362
)


(66,690
)Income (loss) from discontinued operations, net of tax(7)


(32,240
)


(751
)


(49,566
)


(33,544
)


9,346Net loss

$
(6,186
)

$
(57,568
)

$
(188,692
)

$
(153,906
)

$
(57,344
)Per share information:Income (loss) from continuing operations  basic

$
0.28


$
(0.61
)

$
(1.52
)

$
(1.43
)

$
(0.80
)Discontinued operations


(0.35
)


(0.01
)


(0.54
)


(0.40
)


0.11Loss per share  basic

$
(0.07
)

$
(0.62
)

$
(2.06
)

$
(1.83
)

$
(0.69
)Income (loss) from continuing operations  diluted

$
0.28


$
(0.61
)

$
(1.52
)

$
(1.43
)

$
(0.80
)Discontinued operations


(0.35
)


(0.01
)


(0.54
)


(0.40
)


0.11Loss per share  diluted

$
(0.07
)

$
(0.62
)

$
(2.06
)

$
(1.83
)

$
(0.69
)Dividends declared per share of common stock

$



$
0.24


$
0.23


$
0.31


$
0.31   26




---



##### Table of Contents



As of December 31,2007


2006


2005


2004


2003(Restated)


(Restated)


(Restated)


(Restated)Balance Sheet Data:Cash and cash equivalents

$
309,365


$
325,376


$
224,294


$
221,943


$
409,420Working capital(8)


522,764



464,909



342,351



566,295



985,804Total assets


1,494,262



1,505,692



1,515,539



1,522,349



1,912,879Total debt(6)


784,207



787,433



788,934



794,068



1,121,145Stockholders equity(1)(2)(3)(4)(5)(6)(7)(8)


414,103



430,390



435,558



471,538



584,328   Notes to
    Selected Financial Data:
  (1)
    
    Alliance revenue in 2007 included a $19,200,000 milestone
    payment received from Schering-Plough related to the
    outlicensing of pradefovir and a $50,000 payment from a third
    party for the license of certain intellectual property. Alliance
    revenue prior to 2007 consisted exclusively of royalties from
    Schering-Plough and Roche on their sales of ribavirin.(2)
    
    In connection with our acquisitions, portions of the purchase
    price are allocated to acquired in-process research and
    development on projects that, as of the acquisition date, had
    not yet reached technological feasibility and had no alternative
    future use. Such costs are charged to research and development
    expense as of the date of the acquisition. In March 2005 we
    acquired Xcel for approximately $280,000,000 of which
    $126,399,000 was allocated to in-process research and
    development costs and charged to expense. In February 2004, we
    acquired from Amarin Corporation plc its
    U.S.-based
    subsidiary, Amarin Pharmaceuticals, Inc., and all of that
    subsidiarys U.S. product rights. The total
    consideration paid for Amarin was $40,000,000. In August 2003,
    we repurchased the 20% publicly held minority interest in
    Ribapharm, Inc. for an aggregate total purchase price of
    $207,658,000. In connection with these acquisitions, we expensed
    $11,770,000 and $117,609,000 of in-process research and
    development in the years ended December 31, 2004 and 2003,
    respectively.(3)
    
    In 2006, we recorded a gain on litigation settlement from
    litigation with a former chief executive officer, Milan Panic,
    of $17,550,000 relating to Ribapharm bonuses. We also recorded a
    gain on litigation settlement from litigation with the Republic
    of Serbia of $34,000,000 relating to the ownership and
    operations of a joint venture we formerly participated in known
    as Galenika.(4)
    
    In 2004, we incurred an expense of $19,344,000 related to our
    manufacturing and rationalization plan. Our manufacturing sites
    were tested for impairment resulting in an impairment of asset
    value on three of the sites. Accordingly, we wrote these sites
    down to their fair value and recorded asset impairment charges
    of $18,000,000 and severance charges of $1,344,000 in the year
    ended December 31, 2004. In 2005 we made the decision to
    dispose of another manufacturing plant in China which resulted
    in an asset impairment charge of $2,322,000. In 2005, we also
    recorded net gains of approximately $1,816,000 resulting from
    the sale of the manufacturing plants in the United States,
    Argentina and Mexico.In 2006, we incurred an expense of $138,181,000 relating to the
    2006 Restructuring. The expense included employee severance
    costs (259 employees) of $16,997,000, abandoned software
    and other capital assets of $22,178,000, asset impairment
    charges relating to fixed assets at two manufacturing facilities
    and our former headquarters and research facility of $97,344,000
    and contract cancellation and other cash charges of $1,662,000.In 2007, we incurred restructuring expenses of $23,176,000. In
    the first half of 2007, we incurred a restructuring expense of
    $13,575,000 relating to the completion of the 2006
    Restructuring, comprising employee severance costs of $5,130,000
    contract cancellation costs of $3,115,000, the elimination of
    accumulated foreign currency translation adjustments of
    $2,891,000 and asset impairment charges relating to the two
    manufacturing facilities of $2,439,000. On February 28,
    2008, we announced that a strategic review initiated by our
    board of directors in October 2007 resulted in plans for a new
    restructuring program. Charges for this restructuring program
    incurred in 2007 were $9,601,000, comprising $957,000 in
    executive severances, $4,676,000 for professional service 27




---



##### Table of Contents



expenses, and $3,968,000 for contract termination and
    transaction costs associated with the sale of our Asia
    businesses.  (5)
    
    In May and July 2004, we repurchased $326,000,000 aggregate
    principal amount of our
    61/2% Convertible
    Subordinated Notes due 2008. In connection with these
    repurchases, we recorded a loss on early extinguishment of debt
    of $19,892,000 for the year ended December 31, 2004.In November 2003, we completed an offering of $240,000,000
    aggregate principal amount of 3.0% Convertible Subordinated
    Notes due 2010 and $240,000,000 aggregate principal amount of
    4.0% Convertible Subordinated Notes due 2013. We used
    proceeds from this offering to retire $139,589,000 aggregate
    principal amount of our
    61/2% Convertible
    Subordinated Notes due 2008, resulting in a loss on early
    extinguishment of debt of $12,803,000. In December 2003, we
    issued $300,000,000 aggregate principal amount of
    7.0% Senior Notes due 2011.(6)
    
    The tax provision in 2005 included a net charge of $27,368,000
    associated with an Internal Revenue Service examination of our
    U.S. tax returns for the years 1997 to 2001 (including
    interest). The tax provision in 2007 includes a net credit of
    $21,521,000 to partially reverse the 2005 charge, as a result of
    resolving many of the issues raised during the examination
    through an appeals process. In 2007, 2006, 2005 and 2004, we
    recorded valuation allowances of $53,106,000, $28,106,000,
    $39,862,000 and $85,427,000 against our deferred tax asset to
    recognize the uncertainty of realizing the benefits of our
    accumulated U.S. and state net operating losses and
    research credits. In 2007 the increase in the
    U.S. valuation allowance was offset by liabilities for
    uncertain tax positions of $60,095,000, with a net decrease of
    the valuation allowance of $6,989,000. In 2007 we also recorded
    valuation allowances of $7,615,000 to recognize the uncertainty
    of realizing the benefits of foreign net operating losses. As of
    December 31, 2007, the valuation allowances totaled
    $159,710,000. In addition to these factors, the tax provision in
    2005 does not reflect tax benefits for certain of the amounts of
    acquired in-process research and development charged to expense.(7)
    
    In September 2007, we reclassified our Infergen operations as
    discontinued operations. The consolidated financial statements
    have been reclassified for all historical periods presented. The
    loss from discontinued operations in 2007 was primarily related
    to Infergen. In 2006, the loss from discontinued operations was
    related to Infergen, partly offset by the partial release of
    $5,648,000 from a reserve for our environmental liability
    related to our former biomedical facility.On December 30, 2005, we acquired the U.S. and
    Canadian rights to Infergen from InterMune. In this transaction,
    we charged $47,200,000 to acquired in-process research and
    development. As a result of the reclassification of the Infergen
    operations to discontinued operations, this charge was
    classified as an expense within discontinued operations.During 2002, we decided to divest our Russian pharmaceuticals
    segment, biomedical segment, raw materials business and
    manufacturing capability in Central Europe, our photonics
    business and the Circe unit. The loss from discontinued
    operations in 2004 and the income from discontinued operations
    in 2003 relate to the disposition of these businesses.(8)
    
    Working capital in 2007 and 2006 excludes $66,247,000 and
    $124,821,000, respectively, of assets held for sale. 28




---



##### Table of Contents



2006


2005


2004


2003Product salesAs previously reported

$
783,279


$
732,240


$
607,824


$
518,598Adjustment


(1,717
)


(371
)


1,388



(121
)As restated

$
781,562


$
731,869


$
609,212


$
518,477General and administrative expensesAs previously reported

$
115,857


$
108,252


$
99,443


$
111,635Adjustment


(1,274
)


256



219



(391
)As restated

$
114,583


$
108,508


$
99,662


$
111,244Income (loss) from operations, before interest, taxesAs previously reported

$
8,417


$
(49,624
)

$
4,348


$
21,471Adjustment


(443
)


(627
)


1,169



270As restated

$
7,974


$
(50,251
)

$
5,517


$
21,741Loss from continuing operations before income taxes and minority
    interestAs previously reported

$
(21,547
)

$
(83,139
)

$
(52,236
)

$
(13,862
)Adjustment


(443
)


(627
)


1,169



270As restated

$
(21,990
)

$
(83,766
)

$
(51,067
)

$
(13,592
)Provision for income taxesAs previously reported

$
34,264


$
55,151


$
68,640


$
41,248Adjustment


560



(78
)


422



87As restated

$
34,824


$
55,073


$
69,062


$
41,335Loss from continuing operationsAs previously reported

$
(55,814
)

$
(138,577
)

$
(121,109
)

$
(66,873
)Adjustment


(1,003
)


(549
)


747



183As restated

$
(56,817
)

$
(139,126
)

$
(120,362
)

$
(66,690
)Net lossAs previously reported

$
(56,565
)

$
(188,143
)

$
(154,653
)

$
(57,527
)Adjustment


(1,003
)


(549
)


747



183As restated

$
(57,568
)

$
(188,692
)

$
(153,906
)

$
(57,344
)  29




---



##### Table of Contents



2006


2005


2004


2003Basic loss per share  as previously reportedFrom continuing operations

$
(0.60
)

$
(1.51
)

$
(1.44
)

$
(0.80
)From discontinued operations


(0.01
)


(0.54
)


(0.40
)


0.11Net loss

$
(0.61
)

$
(2.05
)

$
(1.84
)

$
(0.69
)Basic income (loss) per share  adjustmentsFrom continuing operations

$
(0.01
)

$
(0.01
)

$
0.01


$
From discontinued operations














Net income (loss)

$
(0.01
)

$
(0.01
)

$
0.01


$
Basic loss per share  as restatedFrom continuing operations

$
(0.61
)

$
(1.52
)

$
(1.43
)

$
(0.80
)From discontinued operations


(0.01
)


(0.54
)


(0.40
)


0.11Net loss

$
(0.62
)

$
(2.06
)

$
(1.83
)

$
(0.69
)Diluted loss per share  as previously reportedFrom continuing operations

$
(0.60
)

$
(1.51
)

$
(1.44
)

$
(0.80
)From discontinued operations


(0.01
)


(0.54
)


(0.40
)


0.11Net loss

$
(0.61
)

$
(2.05
)

$
(1.84
)

$
(0.69
)Diluted income (loss) per share  adjustmentsFrom continuing operations

$
(0.01
)

$
(0.01
)

$
0.01


$
From discontinued operations














Net income (loss)

$
(0.01
)

$
(0.01
)

$
0.01


$
Diluted loss per share  as restatedFrom continuing operations

$
(0.61
)

$
(1.52
)

$
(1.43
)

$
(0.80
)From discontinued operations


(0.01
)


(0.54
)


(0.40
)


0.11Net loss

$
(0.62
)

$
(2.06
)

$
(1.83
)

$
(0.69
)  30




---



##### Table of Contents



2006


2005


2004


2003Cash and cash equivalentsAs previously reported

$
326,002


$
224,856


$
222,590


$
410,019Adjustment


(626
)


(562
)


(647
)


(599
)As restated

$
325,376


$
224,294


$
221,943


$
409,420Marketable securitiesAs previously reported

$
9,743


$
10,210


$
238,918


$
463,962Adjustment


627



563



648



(1,326
)As restated

$
10,370


$
10,773


$
239,566


$
462,636Accounts receivable, netAs previously reported

$
227,452


$
187,987


$
171,860


$
162,402Adjustment


(301
)


5







As restated

$
227,151


$
187,992


$
171,860


$
162,402Prepaid expenses and other current assetsAs previously reported

$
16,398


$
30,205


$
23,076


$
13,863Adjustment






(11,260
)


(4,941
)


1,116As restated

$
16,398


$
18,945


$
18,135


$
14,979Current deferred tax assets, netAs previously reported

$
8,071


$
6,447


$
1,973


$
15,587Adjustment


479



589



96



78As restated

$
8,550


$
7,036


$
2,069


$
15,665Deferred tax assets, netAs previously reported

$
21,514


$
25,342


$



$
Adjustment


(296
)


379



901



1,336As restated

$
21,218


$
25,721


$
901


$
1,336Other assetsAs previously reported

$
53,555


$
43,176


$
40,160


$
49,618Adjustment


372



11,813



5,348



878As restated

$
53,927


$
54,989


$
45,508


$
50,496Assets of discontinued operationsAs previously reported

$
226


$
71,141


$
23,894


$
27,994Adjustment






(5
)






As restated

$
226


$
71,136


$
23,894


$
27,994Accrued liabilitiesAs previously reported

$
142,532


$
140,839


$
127,587


$
115,928Adjustment


4,173



2,488



1,827



2,898As restated

$
146,705


$
143,327


$
129,414


$
118,826 31




---



##### Table of Contents



2006


2005


2004


2003Income taxesAs previously reported

$
39,818


$
47,324


$
20,472


$
14,962Adjustment


(172
)










As restated

$
39,646


$
47,324


$
20,472


$
14,962Deferred tax liabilities, netAs previously reported

$
3,255


$
8,208


$
13,823


$
1,835Adjustment


450



139



102



17As restated

$
3,705


$
8,347


$
13,925


$
1,852Other liabilitiesAs previously reported

$
18,182


$
16,371


$
14,429


$
18,422Adjustment


6,324



1,359



1,693



(2,460
)As restated

$
24,506


$
17,730


$
16,122


$
15,962Liabilities of discontinued operationsAs previously reported

$
18,343


$
23,118


$
32,056


$
19,731Adjustment


(5,657
)


(4,078
)


(4,148
)


As restated

$
12,686


$
19,040


$
27,908


$
19,731Accumulated deficitAs previously reported

$
(848,467
)

$
(770,350
)

$
(560,722
)

$
(380,044
)Adjustment


(3,345
)


(2,342
)


(1,793
)


(2,538
)As restated

$
(851,812
)

$
(772,692
)

$
(562,515
)

$
(382,582
)Accumulated other comprehensive incomeAs previously reported

$
19,458


$
(21,541
)

$
4,711


$
(33,860
)Adjustment


(1,518
)


3,956



3,724



3,566As restated

$
17,940


$
(17,585
)

$
8,435


$
(30,294
)  32




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Restatement
    of Prior Period Financial Information
  Form 10-K
  Form 8-K Form 10-K
        Accounting for Pensions , Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
    33




---



##### Table of Contents



Nine Months

















TotalEnded

















AdditionalSeptember 30,


Year Ended December 31,





IncomeIncome (Expense)

2007


2006


2005


2004


2003


Pre-2003


(Expense)(In thousands)Returns reserve and credit memos in Latin America

$
(1,120
)

$
(1,554
)

$
(371
)

$
1,389


$
(121
)

$
(3,423
)

$
(5,200
)Reversal of revenue in Italy


(1,550
)


(290
)


















(1,840
)Cost of goods bookkeeping in the UK and France


4,710























4,710European pension accounting


(279
)


1,401



(256
)


(220
)


391



(797
)


240Total impact before taxes


1,761



(443
)


(627
)


1,169



270



(4,220
)


(2,090
)Tax effect on above


(611
)


204



139



(422
)


(87
)


1,497



720Other deferred tax items






(764
)


(61
)














(825
)Total impact of restatement

$
1,150


$
(1,003
)

$
(549
)

$
747


$
183


$
(2,723
)

$
(2,195
)     Form 10-Q
    Identification
    of Material Weakness
  Form 10-K,
  Company
    Overview
  Introduction
     34




---



##### Table of Contents



Strategic
    Review and Restructuring
    Accounting for the
    Impairment or Disposal of Long-Lived Assets
    Retigabine 
    RESTORE 1 Data Announcement
  Products in
    Development
  Taribavirin 
    12-week analysis of the Phase IIb study
  Products in Development
  Infergen
    (Reported in Discontinued Operations)
   35




---



##### Table of Contents



Accounting for the Impairment or
    Disposal of Long-Lived Assets
  Ribavirin
    Royalties
        Specialty
    Pharmaceuticals
          Research
    and Development
    Epilepsy
   36




---



##### Table of Contents



Chronic
    Hepatitis C
    Acquisitions
  paid-up
    Accounting for the
    Impairment or Disposal of Long-Lived Assets
     37




---



##### Table of Contents



Results
    of Operations
    2007


2006


2005(Restated)


(Restated)RevenuesSpecialty pharmaceuticalsNorth America

$
276,671


$
264,393


$
232,342International


201,310



239,597



219,319EMEA


307,789



277,572



280,208Total specialty pharmaceuticals


785,770



781,562



731,869Alliance revenues (including ribavirin royalties)


86,452



81,242



91,646Consolidated revenues

$
872,222


$
862,804


$
823,515Operating Income (Loss)Specialty pharmaceuticalsNorth America


100,855



90,359



69,286International


34,189



71,697



65,407EMEA


55,700



45,822



35,937190,744



207,878



170,630Corporate expenses


(75,525
)


(75,382
)


(54,738
)Total specialty pharmaceuticals


115,219



132,496



115,892Restructuring charges and asset impairment


(23,176
)


(138,181
)


(1,253
)Gain on litigation settlement






51,550



Research and development


(16,728
)


(37,891
)


(38,491
)Acquired IPR&D










(126,399
)Consolidated segment operating income (loss)


75,315



7,974



(50,251
)Interest income


17,792



12,610



13,169Interest expense


(42,878
)


(43,726
)


(40,326
)Other, net


1,060



1,152



(6,358
)Income (loss) from continuing operations before provision for
    income taxes

$
51,289


$
(21,990
)

$
(83,766
)   Year
    Ended December 31, 2007 Compared to 2006
  Specialty Pharmaceutical Revenues:
 38




---



##### Table of Contents



Alliance Revenue (including Ribavirin
    royalties):
   39




---



##### Table of Contents



Gross Profit Margin (excluding
    amortization):
  IncreaseYear Ended December 31,


(Decrease)2007


2006


2005


07/06


06/05Gross Profits (Specialty Pharmaceuticals Only)North America

$
232,654


$
220,834


$
186,561



5
%


18
%% of product sales


84
%


84
%


80
%International


133,656



161,970



152,195



(17
)%


6
%% of product sales


66
%


68
%


69
%EMEA


186,366



160,617



170,755



16
%


(6
)%% of product sales


61
%


58
%


61
%Consolidated Gross Profits


552,676



543,421



509,511



2
%


7
%% of product sales


70
%


70
%


70
%   Selling Expenses:
  General and Administrative Expenses:
  Research and Development:
   40




---



##### Table of Contents



Amortization:
  Gain on Litigation Settlement:
  Restructuring Charges and Asset
    Impairments:
  Restructuring
    Charge Detail
  2007
    Restructuring Charges
    Accounting for the Impairment or
    Disposal of Long-Lived Assets
    Employers Accounting for
    Post-employment Benefits Accounting for Costs Associated with Exit or Disposal
    Activities.
  March
    2006  June 2007 Restructuring Charges
   41




---



##### Table of Contents



Accounting
    for the Impairment or Disposal of Long-Lived Assets 24-month
          Restructuring
    Charge Details (in thousands)
  Year Ended


Year EndedDecember 31,


December 31,


Cumulative2007


2006


Total Incurred2006 Restructuring ProgramEmployee severances

$
5,130


$
16,997


$
22,127Contract cancellation and other cash costs


3,115



1,662



4,777Subtotal: cash charges


8,245



18,659



26,904Abandoned software and other capital assets






22,178



22,178Write-off of accumulated foreign currency translation adjustments


2,891







2,891Impairment of manufacturing and research facilities


2,439



97,344



99,783Subtotal: non-cash charges


5,330



119,522



124,852Total:

$
13,575


$
138,181


$
151,756   42




---



##### Table of Contents



Year EndedDecember 31,20072008 Restructuring ProgramEmployee severances

$
957Contract cancellation and other cash costs


8,644Subtotal: cash charges


9,601Subtotal: non-cash charges


Total:

$
9,601   Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
    2006 Restructuring: Reconciliation of Cash Payments and
    AccrualsOpening balance, commencement of restructuring

$
Charges to earnings


19,291Cash paid


(14,075
)Restructuring accrual, December 31, 2006


5,216Charges to earnings


8,245Transition and capital expenditure payment obligations


6,813Cash paid


(16,295
)Restructuring accrual, December 31, 2007

$
3,9792008 Restructuring: Reconciliation of Cash Payments and
    AccrualsOpening balance, commencement of restructuring

$
Charges to earnings


9,601Cash paid


(1,080
)Restructuring accrual, December 31, 2007

$
8,521   Other Income, Net, Including Translation and
    Exchange:
  Interest Expense and Income:
  Income Taxes:
 43




---



##### Table of Contents



non-U.S. deferred
  Loss from Discontinued Operations:
  Year
    Ended December 31, 2006 Compared to 2005
  Specialty Pharmaceutical
    Revenues:
    direct-to-consumer
    Ribavirin Royalties:
 44




---



##### Table of Contents



Gross Profit Margin:
  Selling Expenses:
  General and Administrative Expenses:
  Research and Development:
  Amortization:
  Gain on Litigation Settlement:
  Restructuring Charges and Asset
    Impairments:
  Acquired In-Process Research and Development
    (IPR&D):
   45




---



##### Table of Contents



Other Income, Net, Including Translation and
    Exchange:
  Interest Expense and Income:
  Income Taxes:
    Loss from Discontinued Operations:
  Liquidity
    and Capital Resources
     46




---



##### Table of Contents



Contractual
    Obligations
    Less than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 Years(Amounts in thousands)Long-term debt obligations:7.0% Senior Notes due 2011

$
300,716


$



$



$
300,716


$
3.0% Convertible SubordinatedNotes due 2010


240,000







240,000







4.0% Convertible SubordinatedNotes due 2013


240,000















240,000Interest payments


163,200



37,800



75,600



40,200



9,600Lease obligations


57,758



9,164



16,561



11,577



20,456Total cash obligations

$
1,001,674


$
46,964


$
332,161


$
352,493


$
270,056  47




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Products
    in Development
  Late
    Stage Development of New Chemical Entities
  Retigabine:
      28-day 28-day
 48




---



##### Table of Contents



RETIGABINE:
    SUMMARY RESTORE 1 EFFICACY DATA
  RTG 1200 mg

PlaceboMedian reduction in
    28-day total
    partial seizure frequency* (ITT)


44.3
%


17.5
%n=151



n=150Median reduction in
    28-day total
    partial seizure frequency during Maintenance Phase


54.5
%


18.9
%n=119



n=137Responder Rate (ITT)


45.0
%


18.0
%n=151



n=150Responder Rate during Maintenance Phase**


55.5
%


22.6
%n=119



n=137     ITT population defined as all subjects taking at least 1 dose of
    study medication and having at least 1 efficacy assessment*
    
    FDA endpoint**
    
    Endpoint per EU Committee for Human Medicinal Products (CHMP)
    
    p <0.0001 compared to placebo
    
    Responder Rate defined as ≥ 50% reduction in
    28-day total
    partial seizure frequency        Taribavirin:
   49




---



##### Table of Contents



38-40%
  30 mg/kg 13-18 mg/kg).
  follow-up
  Key
    Efficacy and Safety Data Table at Treatment Week 12 (ITT
    Population)
  TBV 20mg/kg

TBV 25 mg/kg

TBV 30 mg/kg

RBV 800-1400mgn = 67

n = 70

n = 68

n = 70Responders*

43 (64.2)%

40 (57.1)%

37 (54.4)%

36 (51.4)%Undetectable**

28 (41.8)%

29 (41.4)%

17 (25.0)%

22 (31.4)%Anemia rate***

6 (9.0)%

5 (7.1)%

10 (14.7)%

17 (24.3)%     *
    
    HCV RNA undetectable (less than 100 copies per mL) or
    ≥ 2-log decrease in viral load using the NGI SuperQuant
    Assay**
    
    HCV RNA less than 100 copies per mL***
    
    Anemia rate defined as percentage of patients with Hgb level
    < 10 g/dL. p=0.022 for 20mg/kg and p=0.009 for 25mg/kg.      Other
    Development Activities
  Diastat Intranasal:
 50




---



##### Table of Contents



Foreign
    Operations
    Inflation
    and Changing Prices
    Recent
    Accounting Pronouncements
  FIN 48.
    SFAS No. 157.
  SFAS No. 158.
 51




---



##### Table of Contents



SFAS 159.
  SAB No. 108.
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 EITF 07-1 EITF 07-1 EITF 07-1
 52




---



##### Table of Contents



Critical
    Accounting Estimates
      Revenue
    Recognition
               53




---



##### Table of Contents



Sales
    Incentives
    Impairment
    of Property, Plant and Equipment
    Valuation
    of Intangible Assets
        SOP 98-1, Accounting for the Cost of Computer Software Developed or
    Obtained for
 54




---



##### Table of Contents



Internal Use
  Purchase
    Price Allocation Including Acquired In-Process Research and
    Development
    Assets
    Acquired in Business Combinations to be Used in Research and
    Development Activities: A Focus in Software, Electronic Devices
    and Pharmaceutical Industries
    Contingencies
  Accounting
    for Contingencies
  Income
    Taxes
   55




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Derivatives and Hedging ActivityDecember 31, 2007

December 31, 2006Gain/(Loss)



Gain/(Loss)Amount Held in



Amount Held inNotional

OCI or

Notional

OCI orDescription

Amount

Recognized

Amount

RecognizedUndesignated Hedges

$
78,595


$
834


$
14,605


$
(71
)Net Investment Hedges

$
35,000


$
(441
)

$
74,205


$
963Cash Flow Hedges

$
17,788


$
323


$
10,479


$
(106
)Fair Value Hedges

$
26,000


$
490


$
0


$
0Interest Rate Swap

$
150,000


$
715


$
150,000


$
(4,318
)    56




---



##### Table of Contents



57




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  Quarterly
    Financial Data
    First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)


(Restated)


(Restated)(Unaudited)2007Revenues(a)

$
204,403


$
220,542


$
207,054


$
240,223Gross profit on product sales (excluding amortization)


121,032



143,973



135,112



152,559Income (loss) from continuing operations(b)


13,523



21,880



(2,277
)


(7,072
)Loss from discontinued operations, net(c)


(4,200
)


(4,966
)


(9,813
)


(13,261
)Net income (loss)


9,323



16,914



(12,090
)


(20,333
)Basic earnings (loss) per share from continuing operations

$
0.14


$
0.23


$
(0.02
)

$
(0.08
)Discontinued operations, net of tax


(0.04
)


(0.05
)


(0.11
)


(0.14
)Basic earnings (loss) per share  net income (loss)

$
0.10


$
0.18


$
(0.13
)

$
(0.22
)Diluted earnings (loss) per share from continuing operations

$
0.14


$
0.23


$
(0.02
)

$
(0.08
)Discontinued operations, net of tax


(0.04
)


(0.05
)


(0.11
)


(0.14
)Diluted earnings (loss) per share  net income (loss)

$
0.10


$
0.18


$
(0.13
)

$
(0.22
)   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)


(Restated)


(Restated)


(Restated)(Unaudited)2006Revenues

$
185,545


$
218,820


$
210,230


$
248,209Gross profit on product sales (excluding amortization)


113,041



135,120



131,936



163,324Income (loss) from continuing operations(d)(e)


(7,415
)


(40,949
)


7,533



(15,986
)Income (loss) from discontinued operations, net(c)


1,269



(1,176
)


6,004



(6,848
)Net Income (loss)


(6,146
)


(42,125
)


13,537



(22,834
)Basic earnings (loss) per share from continuing operations

$
(0.08
)

$
(0.44
)

$
0.08


$
(0.17
)Discontinued operations, net of tax


0.01



(0.01
)


0.07



(0.07
)Basic earnings (loss) per share  net income (loss)

$
(0.07
)

$
(0.45
)

$
0.15


$
(0.24
)Diluted earnings (loss) per share from continuing operations

$
(0.08
)

$
(0.44
)

$
0.08


$
(0.17
)Discontinued operations, net of tax


0.01



(0.01
)


0.06



(0.07
)Diluted earnings (loss) per share  net income (loss)

$
(0.07
)

$
(0.45
)

$
0.14


$
(0.24
)     (a)
    
    In the first quarter of 2007, we recorded alliance revenue of
    $36,470,000, of which $19,200,000 related to the licensing of
    pradefovir to Schering-Plough.(b)
    
    In the first and second quarters of 2007, we incurred expenses
    of $7,238,000 and $6,337,000, respectively, relating to our
    restructuring program. These restructuring charges included
    employee severance costs (493 employees), professional
    service fees, contract cancellation costs, accumulated foreign
    currency translation adjustments, and asset impairment charges.
    We did not incur a restructuring expense in the third quarter of
    2007. In the fourth quarter of 2007 we incurred expenses related
    to the 2008 Strategic Review, comprising 58




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##### Table of Contents



$957,000 for executive severances, $4,676,000 for professional
    service expenses for management consultants assisting with the
    Strategic Review, and the $3,968,000 contract termination and
    transaction costs associated with the sale of our Asia
    businesses.(c)
    
    Discontinued operations in 2007 and 2006 related primarily to
    our Infergen operations. In the third quarter of 2006, income
    from discontinued operations benefited from the release of
    $5,648,000 of a reserve for environmental remediation(d)
    
    In the first quarter of 2006, we recorded a gain on litigation
    settlement from litigation with the Republic of Serbia of
    $34,000,000 relating to the ownership and operations of a joint
    venture we formerly participated in known as Galenika. In the
    third quarter of 2006, we recorded a gain on litigation
    settlement from litigation with a former Chief Executive
    Officer, Milan Panic of $17,550,000 relating to Ribapharm
    bonuses.(e)
    
    In the first, second, third and fourth quarters of 2006, we
    incurred expenses of $26,466,000, $53,083,000, $17,138,000 and
    $41,494,000 respectively relating to a restructuring program
    undertaken to reduce costs and accelerate earnings growth,
    focused on our research and development and manufacturing
    operations, but also reducing selling, general and
    administrative expenses. The expense included employee severance
    costs (259 employees), abandoned software and other capital
    assets, asset impairment charges relating to writing down fixed
    assets at two manufacturing facilities and our former
    headquarters facility to fair value and contract cancellation
    and other cash charges. 59




---



##### Table of Contents



For the Three Months EndedMarch 31,


June 30,


September 30,2007


2007


2007(Unaudited)RevenuesAs previously reported

$
204,392


$
221,654


$
208,623As restated


204,403



220,542



207,054Gross profit on product sales (excluding amortization)As previously reported


119,094



143,471



135,512As restated


121,032



143,973



135,112Income (loss) from continuing operationsAs previously reported


12,768



21,416



(2,206
)As restated


13,523



21,880



(2,277
)Net income (loss)As previously reported


8,568



16,450



(12,019
)As restated


9,323



16,914



(12,090
)Basic earnings (loss) per share from continuing operationsAs previously reported


0.13



0.23



(0.02
)As restated


0.14



0.23



(0.02
)Basic loss per share from discontinued operationsAs previously reported


(0.04
)


(0.06
)


(0.11
)As restated


(0.04
)


(0.05
)


(0.11
)Basic earnings (loss) per share  net income (loss)As previously reported


0.09



0.17



(0.13
)As restated


0.10



0.18



(0.13
)Diluted earnings (loss) per share from continuing operationsAs previously reported


0.13



0.22



(0.02
)As restated


0.14



0.23



(0.02
)Diluted loss per share from discontinued operationsAs previously reported


(0.04
)


(0.05
)


(0.11
)As restated


(0.04
)


(0.05
)


(0.11
)Diluted earnings (loss) per share  net income (loss)As previously reported


0.09



0.17



(0.13
)As restated


0.10



0.18



(0.13
)   60




---



##### Table of Contents



For the Three Months EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006(Unaudited)RevenuesAs previously reported

$
185,786


$
219,083


$
210,840


$
248,812As restated


185,545



218,820



210,230



248,209Gross profit on product sales (excluding amortization)As previously reported


113,282



135,383



132,546



163,927As restated


113,041



135,120



131,936



163,324Income (loss) from continuing operationsAs previously reported


(7,240
)


(41,343
)


7,704



(14,935
)As restated


(7,415
)


(40,949
)


7,533



(15,986
)Net income (loss)As previously reported


(5,971
)


(42,519
)


13,708



(21,783
)As restated


(6,146
)


(42,125
)


13,537



(22,834
)Basic earnings (loss) per share from continuing operationsAs previously reported


(0.08
)


(0.45
)


0.08



(0.16
)As restated


(0.08
)


(0.44
)


0.08



(0.17
)Basic earnings (loss) per share from discontinued operationsAs previously reported


0.02



(0.01
)


0.07



(0.07
)As restated


0.01



(0.01
)


0.07



(0.07
)Basic earnings (loss) per share  net income (loss)As previously reported


(0.06
)


(0.46
)


0.15



(0.23
)As restated


(0.07
)


(0.45
)


0.15



(0.24
)Diluted earnings (loss) per share from continuing operationsAs previously reported


(0.08
)


(0.45
)


0.08



(0.16
)As restated


(0.08
)


(0.44
)


0.08



(0.17
)Diluted earnings (loss) per share from discontinued operationsAs previously reported


0.02



(0.01
)


0.06



(0.07
)As restated


0.01



(0.01
)


0.06



(0.07
)Diluted earnings (loss) per share  net income (loss)As previously reported


(0.06
)


(0.46
)


0.14



(0.23
)As restated


(0.07
)


(0.45
)


0.14



(0.24
)  61




---



##### 



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
  December 31,
    2007
   
 PageReport of Independent Registered Public
    Accounting Firm


63Financial statements:Consolidated balance sheets at December 31,
    2007 and 2006 (as restated)


65For the years ended December 31, 2007, 2006 and 2005:Consolidated statements of operations (as
    restated)


66Consolidated statements of stockholders
    equity (as restated)


67Consolidated statements of cash flows (as
    restated)


68Notes to consolidated financial statements (as
    restated)


69Financial statement schedule for the years ended
    December 31, 2007, 2006 and 2005:II. Valuation and qualifying accounts


116     62




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal Control  Integrated Framework
       63




---



##### Table of Contents



PricewaterhouseCoopers
    LLP
    64




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  CONSOLIDATED
    BALANCE SHEETS
 December 31,
  2007


2006(Restated)(1)(In thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
309,365


$
325,376Marketable securities


52,122



10,370Accounts receivable, net


191,796



227,151Inventories, net


115,177



130,747Assets held for sale and assets of discontinued operations


66,247



124,821Prepaid expenses and other current assets


21,713



16,398Current deferred tax assets, net


11,819



8,550Income taxes


26,433



2,526Total current assets


794,672



845,939Property, plant and equipment, net


116,376



94,121Deferred tax assets, net


65,950



21,218Goodwill


80,346



75,346Intangible assets, net


401,575



414,915Other assets


35,343



53,927Assets of discontinued operations






226Total non-current assets


699,590



659,753$
1,494,262


$
1,505,692LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables

$
49,203


$
60,621Accrued liabilities


139,754



146,705Notes payable and current portion of long-term debt


1,655



9,237Income taxes


10,239



39,646Liabilities held for sale and liabilities of discontinued
    operations


4,194



Current liabilities for uncertain tax positions


616



Total current liabilities


205,661



256,209Long-term debt, less current portion


782,552



778,196Deferred tax liabilities, net


5,337



3,705Liabilities for uncertain tax positions


68,749



Other liabilities


17,860



24,506Liabilities of discontinued operations






12,686Total non-current liabilities


874,498



819,093Total liabilities


1,080,159



1,075,302Commitments and contingenciesStockholders Equity:Common stock, $0.01 par value; 200,000 shares
    authorized; 89,286 (December 31, 2007) and 94,416
    (December 31, 2006) shares outstanding (after
    deducting shares in treasury of 7,585 as of December 31,
    2007 and 1,094 as of December 31, 2006)


893



944Additional capital


1,192,559



1,263,318Accumulated deficit


(859,559
)


(851,812
)Accumulated other comprehensive income


80,210



17,940Total stockholders equity


414,103



430,390$
1,494,262


$
1,505,692     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements of the Notes to Consolidated Financial
    Statements.   65




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL



CONSOLIDATED
    STATEMENTS OF OPERATIONS

For the
    Years Ended December 31,  2007


2006


2005(Restated)(1)


(Restated)(1)(In thousands except per share data)Revenues:Product sales

$
785,770


$
781,562


$
731,869Alliance revenue (including ribavirin royalties)


86,452



81,242



91,646Total revenues


872,222



862,804



823,515Costs and expenses:Cost of goods sold (excluding amortization)


233,094



238,141



222,358Selling expenses


259,324



244,757



232,316General and administrative expenses


111,721



114,583



108,508Research and development costs


98,025



105,442



114,100Acquired in-process research and development










126,399Gain on litigation settlements






(51,550
)


Restructuring charges and asset impairment


23,176



138,181



1,253Amortization expense


71,567



65,276



68,832Total costs and expenses


796,907



854,830



873,766Income (loss) from operations


75,315



7,974



(50,251
)Other income (loss), net including translation and exchange


1,060



1,152



(6,358
)Interest income


17,792



12,610



13,169Interest expense


(42,878
)


(43,726
)


(40,326
)Income (loss) from continuing operations before income taxes and
    minority interest


51,289



(21,990
)


(83,766
)Provision for income taxes


25,233



34,824



55,073Minority interest, net


2



3



287Income (loss) from continuing operations


26,054



(56,817
)


(139,126
)Loss from discontinued operations


(32,240
)


(751
)


(49,566
)Net loss

$
(6,186
)

$
(57,568
)

$
(188,692
)Basic income (loss) per share:Income (loss) from continuing operations

$
0.28


$
(0.61
)

$
(1.52
)Loss from discontinued operations


(0.35
)


(0.01
)


(0.54
)Basic loss per share:

$
(0.07
)

$
(0.62
)

$
(2.06
)Diluted income (loss) per share:Income (loss) from continuing operations

$
0.28


$
(0.61
)

$
(1.52
)Loss from discontinued operations


(0.35
)


(0.01
)


(0.54
)Diluted loss per share:

$
(0.07
)

$
(0.62
)

$
(2.06
)Shares used in per share computations  basic


93,029



93,387



91,797Shares used in per share computation  diluted


93,976



93,387



91,797Dividends paid per share of common stock

$



$
0.24


$
0.31Dividends declared per share of common stock

$



$
0.24


$
0.23     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements of the Notes to Consolidated Financial
    Statements.   66




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

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


Additional


Accumulated


ComprehensiveShares


Amount


Capital


Deficit


Income (Loss)


Total(As restated)(1)(In thousands)Balance at December 31, 2004, as previously reported


84,219


$
842


$
1,024,776


$
(560,722
)

$
4,711


$
469,607Effect of restatement (See Note 2)














(1,793
)


3,724



1,931Balance at December 31, 2004


84,219



842



1,024,776



(562,515
)


8,435



471,538Comprehensive income:Net loss














(188,692
)






(188,692
)Foreign currency translation adjustments


















(30,383
)


(30,383
)Unrealized gain on marketable equity
    securities and other


















4,363



4,363Total comprehensive loss






















(214,712
)Exercise of stock options


161



2



2,146











2,148Employee stock purchase plan


100



1



1,643











1,644Common stock offering


8,280



83



188,947











189,030Stock option compensation expense










1,192











1,192Stock compensation










2,139











2,139Tax effect on stock options exercised, net










4,064











4,064Dividends














(21,485
)






(21,485
)Balance at December 31, 2005


92,760



928



1,224,907



(772,692
)


(17,585
)


435,558Comprehensive income:Net loss














(57,568
)






(57,568
)Foreign currency translation adjustments


















39,692



39,692Unrealized loss on marketable equity
    securities and other


















(4,810
)


(4,810
)Total comprehensive loss






















(22,686
)Net effect of adopting new accounting standard for pensions


















643



643Exercise of stock options


1,592



16



16,435











16,451Employee stock purchase plan


64







938











938Stock compensation expense










20,848











20,848Stock compensation in discontinued operations










190











190Dividends














(21,552
)






(21,552
)Balance at December 31, 2006


94,416



944



1,263,318



(851,812
)


17,940



430,390Comprehensive income:Net loss














(6,186
)






(6,186
)Foreign currency translation adjustments


















60,117



60,117Pension liability adjustment


















(4,471
)


(4,471
)Unrealized gain on marketable equity securities and other


















6,624



6,624Total comprehensive income






















56,084Exercise of stock options


1,283



12



14,417











14,429Employee stock purchase plan


78



2



857











859Share repurchase


(6,491
)


(65
)


(99,492
)










(99,557
)Stock compensation expense










13,220











13,220Stock compensation in discontinued operations










239











239Net effect of adopting new accounting standard for uncertain tax
    positions














(1,561
)






(1,561
)Balance at December 31, 2007


89,286


$
893


$
1,192,559


$
(859,559
)

$
80,210


$
414,103     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements of the Notes to Consolidated Financial
    Statements.   67




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

For the
    Years Ended December 31,  2007


2006


2005(Restated)(1)


(Restated)(1)(In thousands)Cash flows from operating activities:Net loss

$
(6,186
)

$
(57,568
)

$
(188,692
)Loss from discontinued operations


(32,240
)


(751
)


(49,566
)Income (loss) from continuing operations


26,054



(56,817
)


(139,126
)Adjustments to reconcile income (loss) from continuing
    operations to net cash provided by operating activities in
    continuing operations:Depreciation and amortization


87,968



85,593



97,351Provision for losses on accounts receivable and inventory


18,274



14,071



10,744Stock compensation expense


13,220



20,848



3,331Translation and exchange (gains) losses, net


(1,060
)


(1,152
)


6,358Impairment charges and other non-cash items


6,744



122,171



2,969Acquired in-process research and development










126,399Deferred income taxes


21,404



3,356



(33,913
)Change in assets and liabilities, net of effects of acquisitions:Accounts receivable


31,801



(27,778
)


(14,774
)Inventories


(732
)


(5,598
)


(30,141
)Prepaid expenses and other assets


(8,517
)


(2,232
)


(3,762
)Trade payables and accrued liabilities


(17,996
)


(13,051
)


8,132Income taxes


(50,769
)


(11,991
)


27,559Other liabilities


(4,521
)


(367
)


3,918Cash flow from operating activities in continuing operations


121,870



127,053



65,045Cash flow from operating activities in discontinued operations


(29,349
)


(1,992
)


(587
)Net cash provided by operating activities


92,521



125,061



64,458Cash flows from investing activities:Capital expenditures


(32,222
)


(40,968
)


(45,525
)Proceeds from sale of assets


38,633



10,022



7,252Proceeds from sale of businesses


31,451







Proceeds from investments


36,633



27,913



533,307Purchase of investments


(72,518
)


(26,500
)


(305,300
)Acquisition of businesses, license rights and product lines


(36,184
)


(4,568
)


(293,090
)Cash flow from investing activities in continuing operations


(34,207
)


(34,101
)


(103,356
)Cash flow from investing activities in discontinued operations


(5,135
)


1,948



(114,994
)Net cash provided by (used in) investing activities


(39,342
)


(32,153
)


(218,350
)Cash flows from financing activities:Payments on long-term debt and notes payable


(10,884
)


(6,563
)


(1,114
)Proceeds capitalized lease financing, long-term debt, and notes
    payable


2,006



2,841



802Stock option exercises and employee stock purchases


15,288



17,389



3,792Proceeds from sales of stock (purchase of treasury stock)


(99,557
)






189,030Dividends paid






(21,552
)


(27,966
)Cash flow from financing activities in continuing operations


(93,147
)


(7,885
)


164,544Cash flow from financing activities in discontinued operations


(170
)


1,075



Net cash used in financing activities


(93,317
)


(6,810
)


164,544Effect of exchange rate changes on cash and cash equivalents


23,924



15,140



(8,383
)Net increase (decrease) in cash and cash equivalents


(16,214
)


101,238



2,269Cash and cash equivalents at beginning of period


325,579



224,341



222,072Cash and cash equivalents at end of period


309,365



325,579



224,341Cash and cash equivalents classified as part of discontinued
    operations






(203
)


(47
)Cash and cash equivalents of continuing operations

$
309,365


$
325,376


$
224,294     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements of the Notes to Consolidated Financial
    Statements.   68




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Summary of Significant Accounting Policies    Organization:
  Principles of Consolidation:
  Cash and Cash Equivalents:
  Marketable Securities:
  Allowance for Doubtful Accounts:
  Inventories: first-in,
  Property, Plant and Equipment: 5-10 years
 69




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Capitalized Software Costs: SOP 98-1, Accounting for the Cost of Computer Software Developed or
    Obtained for Internal Use
  Acquired In-Process Research and
    Development:
    Goodwill and Intangible Assets:
      Revenue Recognition:
 70




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Foreign Currency Translation:
  Income Taxes: Accounting for Income Taxes
  Derivative Financial Instruments:
  Comprehensive Income: Reporting Comprehensive
    Income
  Per Share Information:
 71




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-Based Compensation: Share Based Payment Accounting for Stock-Based Compensation Accounting for Stock
    Issued to Employees
          2005Net loss as reported (restated)

$
(188,692
)Stock compensation expense recorded at intrinsic value for stock
    incentive plans


3,331Stock compensation expense determined under fair value based
    method for stock incentive plans


(19,642
)Pro forma net loss

$
(205,003
)Net loss per share:Basic and diluted  as reported

$
(2.06
)Basic and diluted  pro forma

$
(2.23
)   Use of Estimates:
 72




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
  FIN 48.
    SFAS No. 157.
  SFAS No. 158.
  SFAS 159.
 73




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SAB No. 108.
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 EITF 07-1 EITF 07-1 EITF 07-1
  2.
    Restatement
    of Consolidated Financial Statements   74




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Accounting for Pensions Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
    TotalYear Ended





AdditionalDecember 31,





IncomeIncome (Expense)

2006


2005


Prior Periods


(Expense)(In thousands)Returns reserve in Latin America

$
(1,554
)

$
(371
)

$
(2,155
)

$
(4,080
)Reversal of revenue in Italy


(290
)










(290
)European pension accounting


1,401



(256
)


(626
)


519Total impact before taxes


(443
)


(627
)


(2,781
)

$
(3,851
)Tax effect on above


204



139



988


$
1,331Other deferred tax items


(764
)


(61
)






(825
)Total impact of restatement

$
(1,003
)

$
(549
)

$
(1,793
)

$
(3,345
)  75




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005Product salesAs previously reported

$
783,279


$
732,240Adjustment


(1,717
)


(371
)As restated

$
781,562


$
731,869General and administrative expensesAs previously reported

$
115,857


$
108,252Adjustment


(1,274
)


256As restated

$
114,583


$
108,508Income (loss) from operations, before interest, taxes and other
    itemsAs previously reported

$
8,417


$
(49,624
)Adjustment


(443
)


(627
)As restated

$
7,974


$
(50,251
)Loss from continuing operations before income taxes and minority
    interestAs previously reported

$
(21,547
)

$
(83,139
)Adjustment


(443
)


(627
)As restated

$
(21,990
)

$
(83,766
)Provision for income taxesAs previously reported

$
34,264


$
55,151Adjustment


560



(78
)As restated

$
34,824


$
55,073Loss from continuing operationsAs previously reported

$
(55,814
)

$
(138,577
)Adjustment


(1,003
)


(549
)As restated

$
(56,817
)

$
(139,126
)Net lossAs previously reported

$
(56,565
)

$
(188,143
)Adjustment


(1,003
)


(549
)As restated

$
(57,568
)

$
(188,692
)  76




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005Basic loss per share  as previously reportedFrom continuing operations

$
(0.60
)

$
(1.51
)From discontinued operations


(0.01
)


(0.54
)Net loss

$
(0.61
)

$
(2.05
)Basic loss per share  adjustmentsFrom continuing operations

$
(0.01
)

$
(0.01
)From discontinued operations






Net loss

$
(0.01
)

$
(0.01
)Basic loss per share  as restatedFrom continuing operations

$
(0.61
)

$
(1.52
)From discontinued operations


(0.01
)


(0.54
)Net loss

$
(0.62
)

$
(2.06
)Diluted loss per share  as previously reportedFrom continuing operations

$
(0.60
)

$
(1.51
)From discontinued operations


(0.01
)


(0.54
)Net loss

$
(0.61
)

$
(2.05
)Diluted loss per share  adjustmentsFrom continuing operations

$
(0.01
)

$
(0.01
)From discontinued operations






Net loss

$
(0.01
)

$
(0.01
)Diluted loss per share  as restatedFrom continuing operations

$
(0.61
)

$
(1.52
)From discontinued operations


(0.01
)


(0.54
)Net loss

$
(0.62
)

$
(2.06
)  77




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006Cash and cash equivalentsAs previously reported

$
326,002Adjustment


(626
)As restated

$
325,376Marketable securitiesAs previously reported

$
9,743Adjustment


627As restated

$
10,370Accounts receivable, netAs previously reported

$
227,452Adjustment


(301
)As restated

$
227,151Current deferred tax assets, netAs previously reported

$
8,071Adjustment


479As restated

$
8,550Deferred tax assets, netAs previously reported

$
21,514Adjustment


(296
)As restated

$
21,218Other assetsAs previously reported

$
53,555Adjustment


372As restated

$
53,927Accrued liabilitiesAs previously reported

$
142,532Adjustment


4,173As restated

$
146,705Income taxesAs previously reported

$
39,818Adjustment


(172
)As restated

$
39,646 78




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006Deferred tax liabilities, netAs previously reported

$
3,255Adjustment


450As restated

$
3,705Other liabilitiesAs previously reported

$
18,182Adjustment


6,324As restated

$
24,506Liabilities of discontinued operationsAs previously reported

$
18,343Adjustment


(5,657
)As restated

$
12,686Accumulated deficitAs previously reported

$
(848,467
)Adjustment


(3,345
)As restated

$
(851,812
)Accumulated other comprehensive incomeAs previously reported

$
19,458Adjustment


(1,518
)As restated

$
17,940  79




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006








2005As








AsPreviously


2006


2006


Previously


2005


2005Reported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands)Cash flows from operating activities:Net loss

$
(56,565
)

$
(1,003
)

$
(57,568
)

$
(188,143
)

$
(549
)

$
(188,692
)Loss from discontinued operations


(751
)






(751
)


(49,566
)






(49,566
)Income (loss) from continuing operations


(55,814
)


(1,003
)


(56,817
)


(138,577
)


(549
)


(139,126
)Adjustments to reconcile income (loss) from continuing
    operations to net cash provided by operating activities in
    continuing operations:Depreciation and amortization


85,593







85,593



97,351







97,351Provision for losses on accounts receivable and inventory


14,071







14,071



10,744







10,744Stock compensation expense


20,848







20,848



3,331







3,331Translation and exchange (gains) losses, net


(1,152
)






(1,152
)


6,358







6,358Impairment charges and other non-cash items


122,171







122,171



2,969







2,969Acquired in-process research and development














126,399







126,399Deferred income taxes


2,625



731



3,356



(34,204
)


291



(33,913
)Change in assets and liabilities, net of effects of acquisitions:Accounts receivable


(28,068
)


290



(27,778
)


(14,774
)






(14,774
)Inventories


(5,598
)






(5,598
)


(30,141
)






(30,141
)Prepaid expenses and other assets


(858
)


(1,374
)


(2,232
)


(3,545
)


(217
)


(3,762
)Trade payables and accrued liabilities


(14,733
)


1,682



(13,051
)


7,838



294



8,132Income taxes


(11,820
)


(171
)


(11,991
)


27,559







27,559Other liabilities


(117
)


(250
)


(367
)


3,807



111



3,918Cash flow from operating activities in continuing operations


127,148



(95
)


127,053



65,115



(70
)


65,045Cash flow from operating activities in discontinued operations


(2,087
)


95



(1,992
)


(657
)


70



(587
)Net cash provided by operating activities


125,061







125,061



64,458







64,458Cash flows from investing activities:Capital expenditures


(40,968
)






(40,968
)


(45,525
)






(45,525
)Proceeds from sale of assets


10,022







10,022



7,252







7,252Proceeds from sale of businesses






















Proceeds from investments


27,913







27,913



533,307







533,307Purchase of investments


(26,500
)






(26,500
)


(305,300
)






(305,300
)Acquisition of businesses, license rights and product lines


(4,568
)






(4,568
)


(293,090
)






(293,090
)Cash flow from investing activities in continuing operations


(34,101
)






(34,101
)


(103,356
)






(103,356
)Cash flow from investing activities in discontinued operations


1,948







1,948



(114,994
)






(114,994
)Net cash used in investing activities


(32,153
)






(32,153
)


(218,350
)






(218,350
) 80




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006








2005As








AsPreviously


2006


2006


Previously


2005


2005Reported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands)Cash flows from financing activities:Payments on long-term debt and notes payable


(6,563
)






(6,563
)


(1,114
)






(1,114
)Proceeds capitalized lease financing, long-term debt, and notes
    payable


2,841







2,841



802







802Stock option exercises and employee stock purchases


17,389







17,389



192,822







192,822Proceeds from sales of stock (purchase of treasury stock)






















Dividends paid


(21,552
)






(21,552
)


(27,966
)






(27,966
)Cash flow from financing activities in continuing operations


(7,885
)






(7,885
)


164,544







164,544Cash flow from financing activities in discontinued operations


1,075







1,075











Net cash provided by (used in) financing activities


(6,810
)






(6,810
)


164,544







164,544Effect of exchange rate changes on cash and cash equivalents


15,204



(64
)


15,140



(8,468
)


85



(8,383
)Net increase (decrease) in cash and cash equivalents


101,302



(64
)


101,238



2,184



85



2,269Cash and cash equivalents at beginning of period


224,903



(562
)


224,341



222,719



(647
)


222,072Cash and cash equivalents at end of period


326,205



(626
)


325,579



224,903



(562
)


224,341Cash and cash equivalents classified as part of discontinued
    operations


(203
)






(203
)


(47
)






(47
)Cash and cash equivalents of continuing operations

$
326,002


$
(626
)

$
325,376


$
224,856


$
(562
)

$
224,294     3.
    Restructuring  2007
    Restructuring Charges
    Accounting for the Impairment or Disposal of
    Long-Lived Assets
   81




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March
    2006  June 2007 Restructuring Charges
    Accounting
    for the Impairment or Disposal of Long-Lived Assets 24-month
         82




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restructuring
    Charge Details
  Year Ended


Year EndedDecember 31,


December 31,


Cumulative2007


2006


Total Incurred(In thousands)2006 Restructuring ProgramEmployee severances

$
5,130


$
16,997


$
22,127Contract cancellation and other cash costs


3,115



1,662



4,777Subtotal: cash charges


8,245



18,659



26,904Abandoned software and other capital assets






22,178



22,178Write-off of accumulated foreign currency translation adjustments


2,891







2,891Impairment of manufacturing and research facilities


2,439



97,344



99,783Subtotal: non-cash charges


5,330



119,522



124,852Total:

$
13,575


$
138,181


$
151,756   Year EndedDecember 31,20072008 Restructuring ProgramEmployee severances

$
957Contract cancellation and other cash costs


8,644Subtotal: cash charges


9,601Subtotal: non-cash charges


Total:

$
9,601  83




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
    2006 Restructuring: Reconciliation of Cash Payments and
    AccrualsOpening balance, commencement of restructuring

$
Charges to earnings


19,291Cash paid


(14,075
)Restructuring accrual, December 31, 2006


5,216Charges to earnings


8,245Transition and capital expenditure payment obligations


6,813Cash paid


(16,295
)Restructuring accrual, December 31, 2007

$
3,9792008 Restructuring: Reconciliation of Cash Payments and
    AccrualsOpening balance, commencement of restructuring

$
Charges to earnings


9,601Cash paid


(1,080
)Restructuring accrual, December 31, 2007

$
8,521   Pre-
    2006 Activities
    4.
    Acquisitions  2007
    Transactions
  paid-up
  2006
    Transactions
   84




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005
    Transactions
  Melleril and Acurenal:
  Xcel Pharmaceuticals, Inc.:
        Purchase price:Cash paid

$
280,000Working capital adjustment


7,470Transaction costs


5,435$
292,905Allocation:Xcel tangible assets acquired

$
8,875In-process research and development


126,399Intangible product rights


103,500Goodwill


54,131$
292,905    85




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2005Net revenue

$
835,469Loss from continuing operations


(144,335
)Net loss


(193,901
)Basic and diluted loss per share:Loss from continuing operations

$
(1.57
)Net loss

$
(2.11
)       5.
    Discontinued
    Operations     86




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2007


2006


2005Infergen:Product sales

$
32,085


$
42,716


$
Costs and expenses:Cost of goods sold (excluding amortization)


24,897



18,838



Selling expenses


25,602



20,077



General and administrative expenses


1,693



1,315



Research and development costs


6,476



4,176



Acquired in-process research and development










47,200Amortization expense


4,950



6,600



Total costs and expenses


63,618



51,006



47,200Loss from discontinued operations, Infergen


(31,533
)


(8,290
)


(47,200
)Other discontinued operations:Other income (loss)






5,089



(3,889
)Consolidated discontinued operations:Loss from discontinued operations


(31,533
)


(3,201
)


(51,089
)Benefit for income taxes


(2
)


(45
)


Loss from discontinued operations


(31,531
)


(3,156
)


(51,089
)Disposal of discontinued operations, net


(709
)


2,405



1,523Loss from discontinued operations, net

$
(32,240
)

$
(751
)

$
(49,566
)  87




---



##### Table of Contents



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


December 31,2007


2006ASSETSCash

$



$
203Accounts receivable, net






21Inventories, net


1,051



11,932Prepaid expenses and other current assets






2Property, plant and equipment, net


132



158Goodwill


4,816



4,816Intangible assets, net


54,450



59,400Assets of discontinued operations

$
60,449


$
76,532LIABILITIESAccrued liabilities


1,897



12,686Liabilities of discontinued operations

$
1,897


$
12,686      88




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Income
    Taxes    2007


2006


2005(Restated)


(Restated)Domestic

$
(66,032
)

$
(79,426
)

$
(196,686
)Foreign


117,321



57,436



112,920$
51,289


$
(21,990
)

$
(83,766
)     2007


2006


2005(Restated)


(Restated)Current:Federal

$
(18,112
)

$
1,379


$
28,760Effect of foreign earnings repatriation










4,526State


397



1,589



1,377Foreign


36,521



36,999



40,33218,806



39,967



74,995Deferred:Federal


168



254



257State


27



42



Foreign


6,232



(5,439
)


(20,179
)6,427



(5,143
)


(19,922
)$
25,233


$
34,824


$
55,073     2007


2006


2005(Restated)


(Restated)Statutory rate


35
%


35
%


35
%Foreign source income taxed at other effective rates


(12
)%


(69
)%


5
%Change in valuation allowance


60
%


(65
)%


(35
)%Net operating loss & examination adjustments


(31
)%


(47
)%


(31
)%State tax and other, net


(3
)%


(12
)%


(6
)%Effect of IPR&D, not deductible for tax


0
%


0
%


(34
)%Effective rate


49
%


(158
)%


(66
)%    89




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 90




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2007


2006(Restated)Deferred tax assets:NOL and capital loss carryforwards

$
115,632


$
90,460Inventory and other reserves


35,102



29,454Tax credit carryforwards


24,240



13,007Intangibles


31,826



30,873Prepaid tax on intercompany transaction


9,202



7,663Other


20,093



21,026Valuation allowance


(159,710
)


(161,713
)Total deferred tax asset


76,385



30,770Fixed assets and other


(3,789
)


(2,576
)Intangibles


(2,416
)


(6,927
)Total deferred tax liability


(6,205
)


(9,503
)Net deferred tax (liability) asset

$
70,180


$
21,267     2007


2006(Restated)Current deferred tax assets, net

$
11,819


$
8,550Deferred tax asset, net


65,950



21,218Income taxes


2,252



4,796Deferred tax liabilities, net


5,337



3,705        91




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      UnrecognizedGross


Deferred Federal,


Income TaxFederal,


Accrued


Unrecognized


State and Foreign


Benefits, Net ofState and


Interest and


Income Tax


Income Tax


Deferred Federal andForeign Tax


Penalties


Benefits


Benefits


State Benefits(In thousands)Balance at January 1, 2007

$
122,697


$
18,529


$
141,226


$
19,800


$
121,426Additions for tax positions related to the current year


1,214



88



1,302



840



462Additions for tax positions related to prior years


8,337



2,449



10,786



(8,909
)


19,695Settlements


(10,754
)


(10,767
)


(21,521
)


45,979



(67,500
)Lapse of statute of limitations


(235
)






(235
)






(235
)Balance at December 31, 2007


121,259



10,299



131,558



57,710



73,848Less: tax attributable to timing items included above


(115,132
)


(887
)


(116,019
)


(57,710
)


(58,309
)Total UTBs that, if recognized, would impact the effective
    income tax rate as of December 31, 2007

$
6,127


$
9,412


$
15,539


$



$
15,539        92




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    Earnings
    Per Share    2007


2006


2005(Restated)


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

$
26,054


$
(56,817
)

$
(139,126
)Loss from discontinued operations

$
(32,240
)

$
(751
)

$
(49,566
)Net loss

$
(6,186
)

$
(57,568
)

$
(188,692
)Shares:Denominator for basic earnings per share:Weighted shares outstanding


92,841



93,251



91,696Vested stock equivalents (not issued)


188



136



101Denominator for basic earnings per share


93,029



93,387



91,797Denominator for diluted earnings per share:Employee stock options


894







Other dilutive securities


53







Dilutive potential common shares


947







Denominator for dilutive earnings per share


93,976



93,387



91,797Basic earnings (loss) per share:Income (loss) from continuing operations

$
0.28


$
(0.61
)

$
(1.52
)Loss from discontinued operations


(0.35
)


(0.01
)


(0.54
)Basic loss per share

$
(0.07
)

$
(0.62
)

$
(2.06
)Diluted earnings (loss) per share:Income (loss) from continuing operations

$
0.28


$
(0.61
)

$
(1.52
)Loss from discontinued operations


(0.35
)


(0.01
)


(0.54
)Diluted loss per share

$
(0.07
)

$
(0.62
)

$
(2.06
)   No. 90-19, EITF 90-19. earnings-per-share
     93




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Detail of
    Certain Accounts    2007


2006(Restated)Accounts receivable, net:Trade accounts receivable

$
162,591


$
180,466Royalties receivable


18,620



22,212Other receivables


23,513



31,487204,724



234,165Allowance for doubtful accounts


(12,928
)


(7,014
)$
191,796


$
227,151Inventories, net:Raw materials and supplies

$
30,935


$
37,045Work-in-process


13,707



21,477Finished goods


89,363



86,522134,005



145,044Allowance for inventory obsolescence


(18,828
)


(14,297
)$
115,177


$
130,747Property, plant and equipment, net:Land

$
1,778


$
1,593Buildings


59,029



45,545Machinery and equipment


104,275



98,935Furniture and fixtures


27,898



20,842Leasehold improvements


8,060



6,202201,040



173,117Accumulated depreciation and amortization


(98,796
)


(89,476
)Construction in progress


14,132



10,480$
116,376


$
94,121   94




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007


2006(Restated)Accrued liabilitiesPayroll and related items

$
31,302


$
37,092Accrued returns, rebates and allowances


54,846



51,324Legal and professional fees


9,417



7,584Accrued research and development costs


18,586



10,490Environmental accrual


1,354



1,638Interest


4,860



4,860Accrued royalties payable


2,446



4,409Other


16,943



29,308Total accrued liabilities

$
139,754


$
146,705     9.
    Intangible
    Assets and Goodwill    Weighted


December 31, 2007


December 31, 2006Average


Gross


Accumulated


Net


Gross


Accumulated


NetLives


Amount


Amortization


Amount


Amount


Amortization


AmountProduct rightsNeurology


13


$
306,398


$
(128,267
)

$
178,131


$
291,388


$
(99,090
)

$
192,298Infectious diseases


11



21,992



(14,054
)


7,938



20,500



(11,771
)


8,729Dermatology


19



111,934



(54,178
)


57,756



87,105



(44,029
)


43,076Other products


11



343,831



(192,253
)


151,578



310,633



(157,331
)


153,302Total product rights


14



784,155



(388,752
)


395,403



709,626



(312,221
)


397,405License agreement


5



67,376



(61,204
)


6,172



67,376



(49,866
)


17,510Total intangible assets





$
851,531


$
(449,956
)

$
401,575


$
777,002


$
(362,087
)

$
414,915     Scheduled Future Amortization Expense2008


2009


2010


2011


2012


ThereafterProduct rightsNeurology

$
29,438


$
29,438


$
29,269


$
22,699


$
21,065


$
46,223Infectious diseases


1,331



1,326



780



780



780



2,941Dermatology


10,296



10,198



9,861



9,671



4,637



13,093Other products


19,077



18,340



18,276



17,743



17,555



60,586Total product rights


60,142



59,302



58,186



50,893



44,037



122,843License agreement


6,172



















Total

$
66,314


$
59,302


$
58,186


$
50,893


$
44,037


$
122,843  95




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    10.
    Debt and
    lease obligations    2007


20063% Convertible Subordinated Notes due 2010

$
240,000


$
240,0004% Convertible Subordinated Notes due 2013


240,000



240,0007% Senior Notes due 2011


300,716



295,682Mortgages in Swiss francs with an interest rate of LIBOR + 1.5%;
    interest and principal payable semi-annually through 2030






7,177Other


3,310



3,919784,026



786,778Less: current portion


(1,474
)


(8,582
)Total long-term debt

$
782,552


$
778,196        96




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 00-19.
      2008


1,4742009


1,3012010


240,4662011


300,7852012


Thereafter


240,000Total

$
784,026         Operating


CapitalLeases


Leases2008

$
7,548


$
1,6162009


7,561



1,3272010


7,185



4882011


6,068



962012


5,413



Thereafter


20,456



Total

$
54,231


$
3,527Amounts representing interest






(217
)Amounts of lease obligations recorded as debt





$
3,310  97




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Pension
    and Postretirement Employee Benefit Plans          2007


2006(Restated)Changes in benefit obligation:Balance at beginning of the year

$
30,896


$
25,269Service cost


1,198



1,099Interest cost


1,561



1,310Employee contributions






10Actuarial (gains) losses


(1,229
)


1,068Total benefits paid


(2,888
)


(1,866
)Acquisitions






1,014Currency exchange and other


979



2,992Balance at end of the year

$
30,516


$
30,896Changes in plan assets:Balance at beginning of the year

$
18,314


$
15,807Actual return on plan assets


136



902Employer contributions


4,994



356Employee contributions


27



56Benefits paid from plan assets


(925
)


(820
)Currency exchange and other


410



2,012Balance at end of the year

$
22,956


$
18,314Projected benefit obligations in excess of plan assets

$
7,560


$
12,582     98




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007


2006(Restated)Changes in benefit obligation:Balance at beginning of the year

$
52,466


$
56,743Service cost


1,377



1,836Interest cost


1,669



1,865Employee contributions


824



900Actuarial (gains) losses


(1,633
)


(1,281
)Total benefits paid


(4,394
)


(3,267
)Plan settlements and curtailments


(43,984
)


(8,203
)Currency exchange and other


1,835



3,871Balance at end of the year

$
8,161


$
52,466Changes in plan assets:Balance at beginning of the year

$
62,262


$
60,653Actual return on plan assets


2,678



4,920Employer contributions


1,094



1,600Employee contributions


824



900Benefits paid from plan assets


(4,394
)


(3,267
)Plan settlements and curtailments


(54,238
)


(6,886
)Currency exchange and other


2,154



4,341Balance at end of the year

$
10,381


$
62,262Plan assets in excess of projected benefit obligations

$
2,219


$
9,796     2007


2006(Restated)Surplus on plans with assets in excess of obligations


2,219



9,796Deficit on plans with obligations in excess of assets


(7,560
)


(12,582
)Net surplus/(deficit)

$
(5,340
)

$
(2,786
)    99




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006(Restated)Service cost

$
2,575


$
3,022Interest cost


3,230



3,204Expected return on plan assets


(3,809
)


(3,698
)Amortization of past service cost


18



12Amortization of net transition obligation


24



24Recognized actuarial net loss


29



332Net settlement and curtailment costs


1,164



(1,320
)Net periodic benefit cost

$
3,231


$
1,575     2007


2006Expected return on plan assets


5.96
%


4.61
%Discount rate for determining pension benefit obligations


5.75
%


4.04
%Salary increase rate


2.56
%


1.83
%     2007


2006(Restated)Current liabilities

$
(89
)

$
(89
)Non-current liabilities


(7,479
)


(12,758
)Other assets


2,224



9,797Accumulated other comprehensive income


4,817



(1,021
)Net amount recognized in income

$
(527
)

$
(4,071
)     2007


2006(Restated)Unrecognized net actuarial (gains)/losses

$
4,443


$
(1,424
)Unrecognized prior service cost


313



336Unrecognized net transition obligation


60



66Total

$
4,817


$
(1,021
)  100




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance as at December 31, 2006

$
(1,021
)Actuarial loss/(gain)


(3,285
)Settlement loss/(gain)


10,254Portion of net loss/(gain) recognized due to settlement


(1,164
)Exchange rate and other


33Balance as at December 31, 2007

$
4,817     Unrecognized net actuarial gains

$
444Unrecognized prior service cost


31Unrecognized net transition obligation


6Total

$
482     Estimated employers contributions in 2008

$
779   12.
    Supplemental
    Cash Flow Disclosures    2007


2006


2005Interest paid

$
37,800


$
38,054


$
38,094Income taxes paid

$
58,768


$
42,052


$
63,224   13.
    Derivatives
    and Hedging Activities    Interest Rate Swap Agreement:
 101




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign Currency Hedge Transactions:
           102




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivatives and Hedging ActivityDecember 31,


December 31,2007


2006Gain/(Loss)





Gain/(Loss)Amount Held in





Amount Held inNotional


OCI or


Notional


OCI orDescription

Amount


Recognized


Amount


RecognizedUndesignated Hedges

$
78,595


$
834


$
14,605


$
(71
)Net Investment Hedges

$
35,000


$
(441
)

$
74,205


$
963Cash Flow Hedges

$
17,788


$
323


$
10,479


$
(106
)Fair Value Hedges

$
26,000


$
490


$
0


$
0Interest Rate Swap

$
150,000


$
715


$
150,000


$
(4,318
)     14.
    Concentrations
    of Credit Risk      15.
    Stock and
    Stock Incentive Programs  24-month
 103




---



##### Table of Contents



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


ExerciseShares


PriceShares under option, December 31, 2004


13,336


$
17.93Granted


2,192


$
18.16Exercised


(160
)

$
13.36Canceled


(736
)

$
22.28Shares under option, December 31, 2005


14,632


$
17.80Granted


2,014


$
18.54Exercised


(1,592
)

$
10.34Canceled


(1,703
)

$
21.81Shares under option, December 31, 2006


13,351


$
18.28Granted


1,094


$
15.12Exercised


(1,241
)

$
11.63Canceled


(2,312
)

$
21.11Shares under option, December 31, 2007


10,892


$
18.13Exercisable at December 31, 2005


7,197


$
17.82Exercisable at December 31, 2006


8,374


$
18.00Exercisable at December 31, 2007


7,846


$
18.26Awards available for grant at December 31, 2005


513Awards available for grant at December 31, 2006


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


5,004  104




---



##### Table of Contents



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


Date FairShares


ValueNonvested awards at December 31, 2004


51


$
17.70Granted


142


$
18.83Vested


(56
)

$
17.90Forfeited





$
Nonvested awards at December 31, 2005


137


$
18.76Granted


70


$
16.88Vested


(47
)

$
20.14Forfeited


(47
)

$
17.99Nonvested awards at Decemvaber 31, 2006


113


$
17.34Granted


679


$
14.01Vested


(55
)

$
16.37Forfeited


(59
)

$
14.71Nonvested awards at December 31, 2007


678


$
14.31     Outstanding


ExercisableWeighted





Weighted


WeightedAverage





Average


AverageNumber


Exercise


Number


Exercise


RemainingRange of Exercise Prices

of Shares


Price


of Shares


Price


Life (years)$ 8.10 - $17.72


4,768


$
13.75



3,107


$
12.50



6.51$18.55 - $23.78


3,666


$
18.92



2,547


$
18.94



5.73$23.92 - $46.25


2,458


$
25.46



2,192


$
25.64



4.7010,892







7,846   SFAS No. 123(R) Assumptions and Fair
    Value:
  2007

2006

2005Average life of option (years)

5.7

4.1 - 5.7

4.1 - 4.2Stock price volatility

35% - 37%

37% - 39%

39% - 61%Expected dividend per share

$0.00

$0.00 - $0.31

$0.31Risk-free interest rate

4.15 - 4.76%

4.54 - 4.80%

3.77 - 4.40%Weighted-average fair value of options

$6.21

$7.83

$5.87Estimated forfeiture rate

35%

5%

NA      105




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2003 Employee Stock Purchase Plan:
  Restricted Stock Units:
        2007


2006


2005Employee stock options

$
11,012


$
18,532


$
1,192Employee stock purchase plan


224



309



Phantom and restricted stock units


1,984



2,007



2,139Total stock-based compensation expense

$
13,220


$
20,848


$
3,331  106




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Cost of goods sold

$
596


$
1,256


$
252Selling expenses


3,097



3,390



140General and administrative expenses


8,708



13,697



2,031Research and development costs


819



2,505



908Total stock-based compensation expense

$
13,220


$
20,848


$
3,331     2008

$
7,8172009


4,8382010 and thereafter


3,035$
15,690     Dividends:
  16.
    Commitments
    and Contingencies    Securities
    Class Actions:
  Derivative Actions Related to Ribapharm
    Bonuses: and/or
  Paul Gerstley v. Norman
    Barker, Jr. et al.
   107




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SEC Investigation:
  Derivative Actions Related to Stock
    Option and/or
  and/or
  Argentina Antitrust Matter:
  Permax Product Liability Cases:
 108




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Former ICN Yugoslavia Employees:
  Alfa Wasserman:
  Other:
  17.
    Business
    Segments   109




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005(Restated)


(Restated)RevenuesSpecialty pharmaceuticalsNorth America

$
276,671


$
264,393


$
232,342International


201,310



239,597



219,319EMEA


307,789



277,572



280,208Total specialty pharmaceuticals


785,770



781,562



731,869Alliance revenues (including ribavirin royalties)


86,452



81,242



91,646Consolidated revenues

$
872,222


$
862,804


$
823,515Operating Income (Loss)Specialty pharmaceuticalsNorth America


100,855



90,359



69,286International


34,189



71,697



65,407EMEA


55,700



45,822



35,937190,744



207,878



170,630Corporate expenses


(75,525
)


(75,382
)


(54,738
)Total specialty pharmaceuticals


115,219



132,496



115,892Restructuring charges and asset impairment


(23,176
)


(138,181
)


(1,253
)Gain on litigation settlement






51,550



Research and development


(16,728
)


(37,891
)


(38,491
)Acquired IPR&D










(126,399
)Consolidated segment operating income (loss)


75,315



7,974



(50,251
)Interest income


17,792



12,610



13,169Interest expense


(42,878
)


(43,726
)


(40,326
)Other, net


1,060



1,152



(6,358
)Income (loss) from continuing operations before provision for
    income taxes

$
51,289


$
(21,990
)

$
(83,766
)  110




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Depreciation and AmortizationSpecialty pharmaceuticalsNorth America

$
34,483


$
30,470


$
33,950International


14,291



14,419



13,347EMEA


24,071



21,963



30,11272,845



66,852



77,409Corporate expenses


3,655



3,912



3,238Total specialty pharmaceuticals


76,500



70,764



80,647Research and development


11,468



14,829



16,704Total

$
87,968


$
85,593


$
97,351Capital ExpendituresSpecialty pharmaceuticalsNorth America

$
3,731


$
8,898


$
3,279International


11,309



3,580



8,401EMEA


15,161



9,534



11,73730,201



22,012



23,417Corporate expenses


2,021



17,738



19,659Total specialty pharmaceuticals


32,222



39,750



43,076Research and development






1,218



2,449Total

$
32,222


$
40,968


$
45,525    111




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##### Table of Contents



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


December 31,2007


2006Total AssetsNorth America

$
367,869


$
381,198International


200,955



203,292EMEA


493,452



514,600Corporate


319,335



207,802Research and Development Division


52,202



122,268Discontinued operations


60,449



76,532Total

$
1,494,262


$
1,505,692Long-term AssetsNorth America

$
285,712


$
288,889International


57,510



58,607EMEA


221,596



201,420Corporate


110,484



75,506Research and Development Division


24,288



35,105Total

$
699,590


$
659,527    112




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Therapeutic
    Class/Product

2007


2006


2005(Restated)


(Restated)NeurologyMestinon(P)

$
53,012


$
47,625


$
43,535Diastat AcuDial(P)


51,264



50,678



47,631Cesamet(P)


30,173



18,985



10,009Librax


17,170



14,835



18,159Migranal(P)


13,534



11,592



12,949Dalmane/Dalmadorm(P)


11,432



10,957



12,277Tasmar(P)


10,262



6,534



5,829Melleril(P)


8,206



6,431



3,068Zelapar(P)


5,747



3,981



Other Neurology


66,677



63,033



57,431Total Neurology


267,477



234,651



210,888DermatologyEfudix/Efudex(P)


71,714



78,336



60,177Kinerase(P)


30,126



28,929



22,265Dermatix(P)


14,043



10,139



9,187Oxsoralen-Ultra(P)


12,377



10,527



9,365Other Dermatology


39,059



42,023



38,252Total Dermatology


167,319



169,954



139,246Infectious DiseaseVirazole(P)


14,350



16,552



16,547Other Infectious Disease


19,813



20,144



21,459Total Infectious Disease


34,163



36,696



38,006Other therapeutic classesBedoyecta(P)


42,384



49,935



46,762Solcoseryl(P)


23,749



18,916



18,983Bisocard(P)


22,559



15,927



12,847M.V. I. (multi-vitamin infusion)(P)


11,708



13,350



7,602Nyal(P)


11,060



10,216



13,747Espaven(P)


8,458



11,147



9,258Protamin(P)


6,924



6,384



6,047Other products


189,969



214,386



228,483Total other therapeutic classes


316,811



340,261



343,729Total product sales

$
785,770


$
781,562


$
731,869Total Promoted Product sales

$
453,082


$
427,141


$
368,085     (P) 
    Promoted Products with annualized sales of greater than
    $5,000,000. 113




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   18.
    License
    Agreements  Schering-Plough:
         114




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  19.
    Alliance
    Revenue    2007


2006


2005Ribavirin royalty

$
67,202


$
81,242


$
91,646Licensing payment


19,200







Other


50







Total alliance revenue

$
86,452


$
81,242


$
91,646       20.
    Subsequent
    Events      Accounting for the Impairment or Disposal of
    Long-Lived Assets
 115




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##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS  AdditionsBalance at


Charged to


Charged to





BalanceBeginning


Costs and


Other





at Endof Year


Expenses


Accounts


Deductions


of Year(In thousands)Year ended December 31, 2007Allowance for doubtful accounts

$
7,014


$
6,082


$
481


$
(649
)

$
12,928Allowance for inventory obsolescence

$
14,297


$
12,192


$
4,895


$
(12,556
)

$
18,828Deferred tax asset valuation allowance

$
161,713


$
60,721


$
(62,724
)

$



$
159,710Year ended December 31, 2006Allowance for doubtful accounts

$
5,485


$
1,641


$
478


$
(590
)

$
7,014Allowance for inventory obsolescence

$
12,775


$
12,430


$
2,023


$
(12,931
)

$
14,297Deferred tax asset valuation allowance

$
148,100


$
28,106


$




(14,493
)

$
161,713Year ended December 31, 2005Allowance for doubtful accounts

$
6,014


$
598


$
(420
)

$
(707
)

$
5,485Allowance for inventory obsolescence

$
13,932


$
10,145


$
1,184


$
(12,486
)

$
12,775Deferred tax asset valuation allowance

$
107,225


$
56,181


$




(15,306
)

$
148,100   Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Background
    of Restatement
  Form 10-K, Form 10-K,
   116




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##### Table of Contents



Accounting for Pensions , Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
    Disclosure
    Controls and Procedures
      Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f). Internal Control  Integrated
    Framework
     117




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##### Table of Contents



Internal Control  Integrated
    Framework
  Form 10-K.
  Remediation
    Plan
    
    We have engaged professional actuarial and accounting
    consultants to review our calculation of assets and liabilities
    under and accounting for our foreign pension plans. We are also
    working to develop modified controls with regard to our
    accounting for pension obligations.
    We have designed and commenced implementation of enhancements to
    our accounting for product returns and credit memos in foreign
    markets.
    We have reviewed the qualifications and performance of our
    accounting staff in key roles in our foreign locations and
    identified some critical roles in certain foreign markets where
    accounting staff will be retrained or new accounting staff will
    be recruited. We have assigned qualified accounting staff from
    Corporate and our North American offices to review accounting
    procedures in certain foreign countries and have begun to
    enhance our accounting staff in various foreign locales.
    We have modified our revenue recognition procedures in Italy and
    other locations in order to ensure that, when required by
    specific circumstances, we recognize revenue on a cash basis.
    We have implemented revised review procedures over tax
    accounting.      Changes
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   118




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##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    www.valeant.com.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accounting Fees and Services   119




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
  Form 10-K.
  Financial Statement Schedule
  Form 10-K.
    Exhibits
  ExhibitNumber

Description3
.1

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

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

Certificate of Correction to Restated Certificate of
    Incorporation, dated April 3, 2006, previously filed as
    Exhibit 3.3 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 2007, which is
    incorporated herein by reference.3
.4

Amended and Restated Bylaws of the Registrant previously filed
    as Exhibit 3.1 to the Registrants Current Report on
    Form 8-K,
    dated February 25, 2008, which is incorporated herein by
    reference.4
.1

Form of Rights Agreement, dated as of November 2, 1994,
    between the Registrant and American Stock Transfer &
    Trust Company, as trustee, previously filed as
    Exhibit 4.3 to the Registrants Registration Statement
    on
    Form 8-A,
    dated November 10, 1994, which is incorporated herein by
    reference.4
.2

Amended Rights Agreement, dated as of October 5, 2004,
    previously filed as Exhibit 4.1 to the Registrants
    Current Report on
    Form 8-K,
    dated October 5, 2004, which is incorporated herein by
    reference.10
.1

Valeant Pharmaceuticals International 1992 Non-Qualified Stock
    Plan, previously filed as Exhibit 10.57 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 1992, which is incorporated
    herein by reference.10
.2

Valeant Pharmaceuticals International 1994 Stock Option Plan,
    previously filed as Exhibit 10.30 to the Registrants
    Form 10-K
    for the year ended December 31, 1995, which is incorporated
    herein by reference.10
.3

Valeant Pharmaceuticals International 1998 Stock Option Plan,
    previously filed as Exhibit 10.20 to the Registrants
    Form 10-K
    for the year ended December 31, 1998, which is incorporated
    herein by reference.10
.4

Valeant Pharmaceuticals International 2003 Equity Incentive
    Plan, previously filed as Annex B to the Proxy Statement
    filed on Schedule 14A on April 25, 2003, which is
    incorporated herein by reference.**10
.5

Exclusive License and Supply Agreement between Valeant
    Pharmaceuticals International and Schering-Plough Ltd. dated
    July 28, 1995 previously filed as Exhibit 10 to the
    Registrants Amendment 3 to the Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 1996, which is
    incorporated herein by reference.**10
.6

Amendment to Exclusive License and Supply Agreement between
    Valeant Pharmaceuticals International and Schering-Plough Ltd.,
    previously filed as Exhibit 10.32 to the Registrants
    Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference. 120




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##### Table of Contents



ExhibitNumber

Description**10
.7

Amendment to Exclusive License and Supply Agreement between
    Valeant Pharmaceuticals International and Schering-Plough Ltd.
    Dated July 16, 1998, previously filed as Exhibit 10.33
    to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.**10
.8

Agreement among Schering Corporation, Valeant Pharmaceuticals
    International and Ribapharm Inc. dated as of November 14,
    2000, previously filed as Exhibit 10.34 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.**10
.9

Agreement among Valeant Pharmaceuticals International, Ribapharm
    Inc., Hoffmann-La Roche, and F. Hoffmann-La Roche
    Ltd, dated January 3, 2003, previously filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002, which is incorporated
    herein by reference.10
.10

Indenture, dated as of December 12, 2003, among Valeant
    Pharmaceuticals International as issuer, Ribapharm Inc. as
    co-obligor and The Bank of New York as Trustee, previously filed
    as Exhibit 4.1 to the Registrants Registration
    Statement
    No. 333-112906
    on
    Form S-4
    and incorporated herein by reference.10
.11

Form of 7.0% Senior Notes due 2011, previously filed as
    Exhibit A-1
    to Exhibit 4.1 to the Registrants Registration
    Statement
    No. 333-112906
    on
    Form S-4
    and incorporated herein by reference.10
.12

Indenture, dated as of November 19, 2003, among Valeant
    Pharmaceuticals International as issuer, Ribapharm Inc. as
    co-obligor and The Bank of New York as Trustee, previously filed
    as to Exhibit 4.1 to the Registrants Current Report
    on
    Form 8-K
    dated November 25, 2003 and incorporated by reference.10
.13

Form of 3.0% Convertible Subordinated Notes due 2010,
    previously filed as
    Exhibit A-1
    to Exhibit 4.1 to the Registrants Current Report on
    Form 8-K
    dated November 25, 2003 and incorporated herein by
    reference.10
.14

Form of 4.0% Convertible Subordinated Notes due 2013,
    previously filed as
    Exhibit A-2
    to Exhibit 4.1 to the Registrants Current Report on
    Form 8-K
    dated November 25, 2003 and incorporated herein by
    reference.10
.15

Valeant Pharmaceuticals International 2003 Employee Stock
    Purchase Plan, previously filed as Annex C to the Proxy
    Statement filed on Schedule 14A on April 25, 2003,
    which is incorporated herein by reference.10
.16

Agreement between Valeant Pharmaceuticals International and Bary
    G. Bailey, dated October 22, 2002, previously filed as
    Exhibit 10.21 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.10
.17

Amended and Restated Executive Employment Agreement between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    dated March 21, 2005, previously filed as Exhibit 10.1
    to the Registrants Current Report on
    Form 8-K/A
    dated March 25, 2005, which is incorporated herein by
    reference.10
.18

Form of Executive Severance Agreement between Valeant
    Pharmaceuticals International and each of the following persons:
    Eileen C. Pruette (entered into on April 22, 2005), Charles
    Bramlage (entered into on June 16, 2005) and Wesley
    Wheeler (entered into on June 16, 2005), previously filed,
    with respect to Ms. Pruette, as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated April 27, 2005, which is incorporated herein by
    reference, and previously filed, with respect to
    Messrs. Bramlage and Wheeler, as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated June 16, 2005, which is incorporated herein by
    reference.10
.19

Agreement and Plan of Merger among Valeant Pharmaceuticals
    International, BW Acquisition Sub, Inc. and Xcel
    Pharmaceuticals, Inc. previously filed as Exhibit 99.1 to
    the Registrants Current Report on
    Form 8-K
    dated February 1, 2005, which is incorporated herein by
    reference.**10
.20

Asset Purchase Agreement, dated as of January 22, 2004, by
    and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co.
    KG., previously filed as Exhibit 10.7 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005, which is incorporated
    herein by reference.10
.21

Amended and Restated Diastat Asset Purchase Agreement, dated
    March 31, 2001, by and among Xcel Pharmaceuticals, Inc.,
    Elan Pharmaceuticals, Inc. and Elan Pharma International
    Limited, previously filed as Exhibit 10.8 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005, which is incorporated
    herein by reference. 121




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##### Table of Contents



ExhibitNumber

Description10
.22

Valeant Pharmaceuticals International 2006 Equity Incentive Plan
    previously filed as Exhibit 10.1 to the Current Report on
    Form 8-K
    filed on May 25, 2006, which is incorporated herein by
    reference.10
.23

Form of Restricted Stock Unit Award Agreement under the 2003
    Equity Incentive Plan, previously filed as Exhibit 99.1 to
    the Current Report on
    Form 8-K
    filed on June 27, 2006, which is incorporated herein by
    reference.10
.24

Description of Registrants Executive Incentive Plan,
    previously described in Item 5.02 of Registrants
    Current Report on
    Form 8-K,
    dated March 28, 2007, which is incorporated herein by
    reference.10
.25

Form of Restricted Stock Unit Award Grant Notice for Directors
    under the 2006 Equity Incentive Plan, previously filed as
    Exhibit 10.1 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2007, which is incorporated
    herein by reference.10
.26

Form of Restricted Stock Unit Award Agreement for Directors
    under the 2006 Equity Incentive Plan, previously filed as
    Exhibit 10.2 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2007, which is incorporated
    herein by reference.**10
.27

Asset Purchase Agreement dated December 19, 2007 between
    Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals
    North America.**10
.28

Side Letter dated January 11, 2008 between Three Rivers
    Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.10
.29

Employment Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and J. Michael Pearson,
    previously filed as of Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.30

Separation Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    previously filed as of Exhibit 10.2 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.31

Release Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    previously filed as of Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.32

Separation and Release Agreement, dated as of December 13,
    2007, between Valeant Pharmaceuticals International and Wesley
    P. Wheeler.21


Subsidiaries of the Registrant.31
.1

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

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


Certification of Chief Executive Officer and Chief Financial
    Officer of Periodic Financial Reports pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. § 1350.     *
    
    None of the other indebtedness of the Registrant exceeds 10% of
    its total consolidated assets. The Registrant will furnish
    copies of the instruments relating to such other indebtedness
    upon request.**
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment.
    
    Management contract or compensatory plan or arrangement. 122




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##### Table of Contents



SIGNATURES
    Valeant Pharmaceuticals
    International
  By
    /s/  J.
    Michael Pearson  J. Michael Pearson
 Chairman and Chief Executive Officer
      Name

Title

Date/s/  J.
    Michael PearsonJ.
    Michael Pearson

Chief Executive Officer and Chairman of the Board (Principal
    Executive Officer)

Date: March 17, 2008/s/  Peter
    J. BlottPeter
    J. Blott

Executive Vice President and Chief Financial Officer (Principal
    Financial Officer)

Date: March 17, 2008/s/  Robert
    A. IngramRobert
    A. Ingram

Lead Director

Date: March 17, 2008/s/  Richard
    H. KoppesRichard
    H. Koppes

Director

Date: March 17, 2008/s/  Lawrence
    N. KugelmanLawrence
    N. Kugelman

Director

Date: March 17, 2008/s/  Theo
    Melas-KyriaziTheo
    Melas-Kyriazi

Director

Date: March 17, 2008/s/  G.
    Mason MorfitG.
    Mason Morfit

Director

Date: March 17, 2008/s/  Norma
    A. ProvencioNorma
    A. Provencio

Director

Date: March 17, 2008  123




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

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

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

Certificate of Correction to Restated Certificate of
    Incorporation, dated April 3, 2006, previously filed as
    Exhibit 3.3 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 2007, which is
    incorporated herein by reference.3
.4

Amended and Restated Bylaws of the Registrant previously filed
    as Exhibit 3.1 to the Registrants Current Report on
    Form 8-K,
    dated February 25, 2008, which is incorporated herein by
    reference.4
.1

Form of Rights Agreement, dated as of November 2, 1994,
    between the Registrant and American Stock Transfer &
    Trust Company, as trustee, previously filed as
    Exhibit 4.3 to the Registrants Registration Statement
    on
    Form 8-A,
    dated November 10, 1994, which is incorporated herein by
    reference.4
.2

Amended Rights Agreement, dated as of October 5, 2004,
    previously filed as Exhibit 4.1 to the Registrants
    Current Report on
    Form 8-K,
    dated October 5, 2004, which is incorporated herein by
    reference.10
.1

Valeant Pharmaceuticals International 1992 Non-Qualified Stock
    Plan, previously filed as Exhibit 10.57 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 1992, which is incorporated
    herein by reference.10
.2

Valeant Pharmaceuticals International 1994 Stock Option Plan,
    previously filed as Exhibit 10.30 to the Registrants
    Form 10-K
    for the year ended December 31, 1995, which is incorporated
    herein by reference.10
.3

Valeant Pharmaceuticals International 1998 Stock Option Plan,
    previously filed as Exhibit 10.20 to the Registrants
    Form 10-K
    for the year ended December 31, 1998, which is incorporated
    herein by reference.10
.4

Valeant Pharmaceuticals International 2003 Equity Incentive
    Plan, previously filed as Annex B to the Proxy Statement
    filed on Schedule 14A on April 25, 2003, which is
    incorporated herein by reference.**10
.5

Exclusive License and Supply Agreement between Valeant
    Pharmaceuticals International and Schering-Plough Ltd. dated
    July 28, 1995 previously filed as Exhibit 10 to the
    Registrants Amendment 3 to the Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 1996, which is
    incorporated herein by reference.**10
.6

Amendment to Exclusive License and Supply Agreement between
    Valeant Pharmaceuticals International and Schering-Plough Ltd.,
    previously filed as Exhibit 10.32 to the Registrants
    Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.**10
.7

Amendment to Exclusive License and Supply Agreement between
    Valeant Pharmaceuticals International and Schering-Plough Ltd.
    Dated July 16, 1998, previously filed as Exhibit 10.33
    to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.**10
.8

Agreement among Schering-Plough Corporation, Valeant
    Pharmaceuticals International and Ribapharm Inc. dated as of
    November 14, 2000, previously filed as Exhibit 10.34
    to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.**10
.9

Agreement among Valeant Pharmaceuticals International, Ribapharm
    Inc., Hoffmann-La Roche, and F. Hoffmann-La Roche Ltd,
    dated January 3, 2003, previously filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002, which is incorporated
    herein by reference. 124




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##### Table of Contents



ExhibitNumber

Description10
.10

Indenture, dated as of December 12, 2003, among Valeant
    Pharmaceuticals International as issuer, Ribapharm Inc. as
    co-obligor and The Bank of New York as Trustee, previously filed
    as Exhibit 4.1 to the Registrants Registration
    Statement
    No. 333-112906
    on
    Form S-4
    and incorporated herein by reference.10
.11

Form of 7.0% Senior Notes due 2011, previously filed as
    Exhibit A-1
    to Exhibit 4.1 to the Registrants Registration
    Statement
    No. 333-112906
    on
    Form S-4
    and incorporated herein by reference.10
.12

Indenture, dated as of November 19, 2003, among Valeant
    Pharmaceuticals International as issuer, Ribapharm Inc. as
    co-obligor and The Bank of New York as Trustee, previously filed
    as to Exhibit 4.1 to the Registrants Current Report
    on
    Form 8-K
    dated November 25, 2003 and incorporated by reference.10
.13

Form of 3.0% Convertible Subordinated Notes due 2010,
    previously filed as
    Exhibit A-1
    to Exhibit 4.1 to the Registrants Current Report on
    Form 8-K
    dated November 25, 2003 and incorporated herein by
    reference.10
.14

Form of 4.0% Convertible Subordinated Notes due 2013,
    previously filed as
    Exhibit A-2
    to Exhibit 4.1 to the Registrants Current Report on
    Form 8-K
    dated November 25, 2003 and incorporated herein by
    reference.10
.15

Valeant Pharmaceuticals International 2003 Employee Stock
    Purchase Plan, previously filed as Annex C to the Proxy
    Statement filed on Schedule 14A on April 25, 2003,
    which is incorporated herein by reference.10
.16

Agreement between Valeant Pharmaceuticals International and Bary
    G. Bailey, dated October 22, 2002, previously filed as
    Exhibit 10.21 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002, as amended by
    Form 10-K/A,
    which is incorporated herein by reference.10
.17

Amended and Restated Executive Employment Agreement between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    dated March 21, 2005, previously filed as Exhibit 10.1
    to the Registrants Current Report on
    Form 8-K/A
    dated March 25, 2005, which is incorporated herein by
    reference.10
.18

Form of Executive Severance Agreement between Valeant
    Pharmaceuticals International and each of the following persons:
    Eileen C. Pruette (entered into on April 22, 2005), Charles
    Bramlage (entered into on June 16, 2005) and Wesley
    Wheeler (entered into on June 16, 2005), previously filed,
    with respect to Ms. Pruette, as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated April 27, 2005, which is incorporated herein by
    reference, and previously filed, with respect to
    Messrs. Bramlage and Wheeler, as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated June 16, 2005, which is incorporated herein by
    reference.10
.19

Agreement and Plan of Merger among Valeant Pharmaceuticals
    International, BW Acquisition Sub, Inc. and Xcel
    Pharmaceuticals, Inc. previously filed as Exhibit 99.1 to
    the Registrants Current Report on
    Form 8-K
    dated February 1, 2005, which is incorporated herein by
    reference.**10
.20

Asset Purchase Agreement, dated as of January 22, 2004, by
    and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co.
    KG., previously filed as Exhibit 10.7 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005, which is incorporated
    herein by reference.10
.21

Amended and Restated Diastat Asset Purchase Agreement, dated
    March 31, 2001, by and among Xcel Pharmaceuticals, Inc.,
    Elan Pharmaceuticals, Inc. and Elan Pharma International
    Limited, previously filed as Exhibit 10.8 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005, which is incorporated
    herein by reference.10
.22

Valeant Pharmaceuticals International 2006 Equity Incentive Plan
    previously filed as Exhibit 10.1 to the Current Report on
    Form 8-K
    filed on May 25, 2006, which is incorporated herein by
    reference.10
.23

Form of Restricted Stock Unit Award Agreement under the 2003
    Equity Incentive Plan, previously filed as Exhibit 99.1 to
    the Current Report on
    Form 8-K
    filed on June 27, 2006, which is incorporated herein by
    reference.10
.24

Description of Registrants Executive Incentive Plan,
    previously described in Item 5.02 of Registrants
    Current Report on
    Form 8-K,
    dated March 28, 2007, which is incorporated herein by
    reference. 125




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##### Table of Contents



ExhibitNumber

Description10
.25

Form of Restricted Stock Unit Award Grant Notice for Directors
    under the 2006 Equity Incentive Plan, previously filed as
    Exhibit 10.1 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2007, which is incorporated
    herein by reference.10
.26

Form of Restricted Stock Unit Award Agreement for Directors
    under the 2006 Equity Incentive Plan, previously filed as
    Exhibit 10.2 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2007, which is incorporated
    herein by reference.**10
.27

Asset Purchase Agreement dated December 19, 2007 between
    Three Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals
    North America.**10
.28

Side Letter dated January 11, 2008 between Three Rivers
    Pharmaceuticals, LLC and Valeant Pharmaceuticals North America.10
.29

Employment Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and J. Michael Pearson,
    previously filed as of Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.30

Separation Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    previously filed as of Exhibit 10.2 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.31

Release Agreement dated as of February 1, 2008 between
    Valeant Pharmaceuticals International and Timothy C. Tyson,
    previously filed as of Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    dated February 6, 2008 and incorporated herein by reference.10
.32

Separation and Release Agreement, dated as of December 13,
    2007, between Valeant Pharmaceuticals International and Wesley
    P. Wheeler.21


Subsidiaries of the Registrant.31
.1

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

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


Certification of Chief Executive Officer and Chief Financial
    Officer of Periodic Financial Reports pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. § 1350.     *
    
    None of the other indebtedness of the Registrant exceeds 10% of
    its total consolidated assets. The Registrant will furnish
    copies of the instruments relating to such other indebtedness
    upon request.**
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment.
    
    Management contract or compensatory plan or arrangement. 126