##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2006oro

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. EmployerIdentification No.)One Enterprise
    Aliso Viejo, California(Address of principal
    executive offices)

92656(Zip Code)   (949) 461-6000
 (Registrants telephone
    number, including area code)
  o þ
   þ o o
  o þ




---



##### 



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  INDEX
  
  PageNumberPART I 
    FINANCIAL INFORMATIONItem 1.

Financial Statements


2Consolidated
    Condensed Balance Sheets as of September 30, 2006 and
    December 31, 2005


2Consolidated
    Condensed Statements of Operations for the three months and nine
    months ended September 30, 2006 and 2005


3Consolidated
    Condensed Statements of Comprehensive Income for the three
    months and nine months ended September 30, 2006 and
    2005


4Consolidated
    Condensed Statements of Cash Flows for the nine months ended
    September 30, 2006 and 2005


5Notes to
    Consolidated Condensed Financial Statements


6Item 2.

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


35Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


61Item 4.

Controls and
    Procedures


62PART II 
    OTHER INFORMATIONItem 1.

Legal
    Proceedings


64Item 1A.

Risk
    Factors


64Item 6.

Exhibits


66SIGNATURES


67EXHIBIT 15.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   1




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED BALANCE SHEETSAs of September 30, 2006 and December 31, 2005
    (In thousands, except par value data)
  September 30,


December 31,2006


2005(Unaudited)


(Restated)(1)ASSETSCurrent Assets:Cash and cash equivalents

$
267,887


$
224,856Marketable securities


9,563



10,210Accounts receivable, net


211,823



187,987Inventories, net


148,578



136,034Assets held for sale


44,412



Prepaid expenses and other current
    assets


30,207



40,354Total current assets


712,470



599,441Property, plant and equipment, net


122,109



230,126Deferred tax assets, net


16,636



25,342Goodwill


80,123



79,486Intangible assets, net


489,452



536,319Other assets


44,836



43,176Assets of discontinued operations


660



127Total non-current assets


753,816



914,576$
1,466,286


$
1,514,017LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables

$
50,429


$
55,279Accrued liabilities


142,778



140,838Notes payable and current portion
    of long-term debt


474



495Income taxes


34,355



47,324Total current liabilities


228,036



243,936Long-term debt, less current
    portion


782,821



788,439Deferred tax liabilities, net


2,939



8,208Other liabilities


19,081



16,372Liabilities of discontinued
    operations


17,347



23,118Total non-current liabilities


822,188



836,137Commitments and contingenciesStockholders Equity:Common stock, $0.01 par
    value; 200,000 shares authorized; 92,873 (June 30,
    2006) and 92,760 (December 31, 2005) shares
    outstanding (after deducting shares in treasury of 1,094 as of
    September 30, 2006 and December 31, 2005)


934



928Additional capital


1,249,149



1,224,907Accumulated deficit


(826,682
)


(770,350
)Accumulated other comprehensive
    income (loss)


(7,339
)


(21,541
)Total stockholders equity


416,062



433,944$
1,466,286


$
1,514,017     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements.   2




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSFor the three months and nine months ended
    September 30, 2006 and 2005
    (Unaudited, in thousands, except per share data)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)(1)





(Restated)(1)Revenues:Product sales

$
199,006


$
183,442


$
589,163


$
526,166Ribavirin royalties


20,968



21,953



60,694



65,494Total revenues


219,974



205,395



649,857



591,660Costs and expenses:Cost of goods sold (excluding
    amortization)


60,305



54,637



184,665



156,423Selling expenses


67,582



59,052



198,127



173,391General and administrative expenses


27,212



26,792



86,325



77,607Research and development costs


20,849



28,961



77,270



82,421Acquired in-process research and
    development














126,399Gain on litigation settlement


(17,550
)






(51,550
)


Restructuring charges


17,139



135



96,687



506Amortization expense


18,424



15,782



53,461



46,961Total costs and expenses


193,961



185,359



644,985



663,708Income (loss) from operations


26,013



20,036



4,872



(72,048
)Other income (loss), net,
    including translation and exchange


(454
)


(1,207
)


1,240



(5,629
)Interest income


3,209



3,193



8,582



9,327Interest expense


(10,960
)


(10,077
)


(32,259
)


(29,821
)Income (loss) from continuing
    operations before income taxes and minority interest


17,808



11,945



(17,565
)


(98,171
)Provision for income taxes


11,646



15,569



24,351



42,340Minority interest, net


1



184



2



489Income (loss) from continuing
    operations


6,161



(3,808
)


(41,918
)


(141,000
)Income (loss) from discontinued
    operations


7,546



1,123



7,137



(2,368
)Net income (loss)

$
13,707


$
(2,685
)

$
(34,781
)

$
(143,368
)Basic income (loss) per share:Income (loss) from continuing
    operations

$
0.07


$
(0.04
)

$
(0.45
)

$
(1.54
)Income (loss) from discontinued
    operations


0.08



0.01



0.08



(0.03
)$
0.15


$
(0.03
)

$
(0.37
)

$
(1.57
)Diluted earnings per share:Income (loss) from continuing
    operations

$
0.06


$
(0.04
)

$
(0.45
)

$
(1.54
)Income (loss) from discontinued
    operations


0.08



0.01



0.08



(0.03
)$
0.14


$
(0.03
)

$
(0.37
)

$
(1.57
)Shares used in per share
    computation  Basic


93,093



92,626



92,907



91,357Shares used in per share
    computation  Diluted


95,265



92,626



92,907



91,357Dividends paid per share of common
    stock

$
0.08


$
0.08


$
0.24


$
0.24Dividends declared per share of
    common stock

$



$
0.08


$
0.16


$
0.24     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements.   3




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE
    INCOMEFor the three months and nine months ended
    September 30, 2006 and 2005
    (Unaudited, in thousands)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)(1)





(Restated)(1)Net income (loss)

$
13,707


$
(2,683
)

$
(34,781
)

$
(143,368
)Other comprehensive income (loss):Foreign currency translation
    adjustments


4,745



3,177



15,371



(28,563
)Unrealized losses on marketable
    equity securities and other


(99
)


(1,058
)


(1,169
)


5,193Comprehensive (loss)

$
18,551


$
(564
)

$
(20,579
)

$
(166,738
)     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements.   4




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##### Table of Contents



VALEANT
    PHARMACEUTICALSCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFor the nine months ended September 30, 2006 and
    2005
    (Unaudited, in thousands)
  2006


2005(Restated)(1)Cash flows from operating
    activities:Net loss

$
(34,781
)

$
(143,368
)Income (loss) from discontinued
    operations


7,137



(2,368
)Loss from continuing operations


(41,918
)


(141,000
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


70,024



68,321Provision for losses on accounts
    receivable and inventory obsolescence


11,697



6,299Stock compensation expense


16,351



2,451Translation and exchange (gains)
    losses, net


(1,240
)


5,629Impairment charges and other
    non-cash items


83,578



697Acquired in-process research and
    development






126,399Deferred income taxes


7,610



(18,275
)Change in assets and liabilities,
    net of effects of acquisitions:Accounts receivable


(21,955
)


8,157Inventories


(18,461
)


(18,216
)Prepaid expenses, assets held for
    sale and other assets


(2,203
)


1,058Trade payables and accrued
    liabilities


(8,320
)


8,842Income taxes


(17,744
)


15,104Other liabilities


1,742



2,035Cash flow from operating
    activities in continuing operations


79,161



67,501Cash flow from operating
    activities in discontinued operations


903



(1,522
)Net cash provided by operating
    activities


80,064



65,979Cash flows from investing
    activities:Capital expenditures


(26,635
)


(27,206
)Proceeds from sale of assets


8,337



7,279Proceeds from investments


20,501



527,708Purchase of investments


(20,200
)


(304,714
)Cash acquired in connection with
    acquisition






11,198Acquisition of businesses, license
    rights and product lines


(4,129
)


(300,129
)Cash flow from investing
    activities in continuing operations


(22,126
)


(85,864
)Cash flow from investing
    activities in discontinued operations


(1
)


5,539Net cash used in investing
    activities


(22,127
)


(80,325
)Cash flows from financing
    activities:Payments on long-term debt and
    notes payable


(6,422
)


(759
)Proceeds from issuance of
    long-term debt


578



Stock option exercises and
    employee stock purchases


7,898



2,205Proceeds from stock offering






189,030Dividends paid


(21,550
)


(20,804
)Net cash provided by (used in)
    financing activities


(19,496
)


169,672Effect of exchange rate changes on
    cash and cash equivalents


4,679



(8,136
)Net increase in cash and cash
    equivalents


43,120



147,190Cash and cash equivalents at
    beginning of period


224,903



222,719Cash and cash equivalents at end
    of period


268,023



369,909Cash and cash equivalents
    classified as part of discontinued operations


(136
)


(91
)Cash and cash equivalents of
    continuing operations

$
267,887


$
369,818     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements.   5




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 September 30, 2006
 (Unaudited)
  Form 10-K/A
  1.
    Organization
    and Summary of Significant Accounting Policies  Organization:
  Principles of Consolidation:
  Marketable Securities: available-for-sale
  Intangible Assets and Goodwill:
    Acquired In-Process Research and Development
    (IPR&D): AICPA Practice Aid, Assets Acquired in a
    Business Combination to Be Used in Research and Development
    Activities: A Focus on Software, Electronic Devices, and
    Pharmaceutical Industries.
 6




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
       Derivative Financial Instruments:
  Comprehensive Income: Reporting Comprehensive
    Income.
  Per Share Information:
  Stock-Based Compensation Expense:
         7




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
      Periods EndedSeptember 30, 2005Three Months


Nine Months(In thousands, exceptper share amounts)(Restated)


(Restated)Net loss as reported

$
(2,685
)

$
(143,368
)Stock compensation expense
    recorded at intrinsic value for stock incentive plans


799



2,451Stock compensation expense
    determined under fair value method for stock incentive plans


(5,564
)


(16,738
)Pro forma net loss

$
(7,450
)

$
(157,655
)Net loss per share:Basic and diluted  as
    reported

$
(0.03
)

$
(1.57
)Basic and diluted  pro
    forma

$
(0.08
)

$
(1.73
)   Recent Accounting Pronouncements: Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
    (FIN 48)
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans, an amendment of FASB Statements
    No. 87, 88, 106, and 132(R)
    Dividends:
 8




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   Use of Estimates:
  2.
    Restatement
    of Consolidated Financial Statements  Form 10-K 10-K),
  Form 10-Q Form 10-Q
  ®
    e-mail
 9




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
       Options
    Granted Prior to the Change in Control
  in-the-money
       10




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   Accounting
    for Certain Transactions involving Stock Compensation
    in-the-money, in-the-money
  Cash
    Surrender of Options at Change in Control in 2002
    in-the-money
  Options
    Granted After the Change in Control
     11




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
  in-the-money
  rank-and-file
    New
    Hire Grant Practices
     12




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Tax Effects
       13




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   Summary
    and Other Items
    TotalYear Ended


Cumulative


AdditionalSix Months Ended June 30,


December 31,


Effect


Expense2006


2005


2005


2004


2003


1982 -2002


(Income)Stock option grants prior to 2002
    Change in Control:Broad-based option grants with
    improper measurement dates

$



$



$



$



$



$
11,488


$
11,488Option grants to directors with
    improper measurement dates






















148



148Other option grants with improper
    measurement dates






















4,538



4,538Re-priced Option grant






















997



997Improper measurement dates for
    option grants
    1982-1994






















1,375



1,375Incremental charge in connection
    with change of control






















10,105



10,105Sub total pre Change in Control






















28,651



28,651Stock option grants after 2002
    Change in Control:Company-wide option grants with
    improper measurement dates


(3
)


587



1,171



1,085



172







2,425Other stock option matters after
    June 2002






13



22



(7
)


20







35Sub total post Change in Control


(3
)


600



1,193



1,078



192







2,460Total impact of additional stock
    compensation on operating income


(3
)


600



1,193



1,078



192



28,651



31,111Other items corrected in
    connection with restatement


(1,772
)


(67
)


(2,273
)


(1,265
)


(90
)


7,766



2,366Tax effects of above and other tax
    items


(1,170
)


344



963



(14,957
)


1,785



3,357



(10,022
)Net income decrease (increase)
    resulting from all restatement items

$
(2,945
)

$
877


$
(117
)

$
(15,144
)

$
1,887


$
39,774


$
23,455  14




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##### Table of Contents



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


Nine Months EndedSeptember 30, 2005


September 30, 2005As Previously








As Previouslyreported


Adj.


As Restated


Reported


Adj.


As Restated(In thousands, except per share data)


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

$
183,004


$
438


$
183,442


$
525,635


$
531


$
526,166Ribavirin royalties


21,953







21,953



65,494







65,494Total revenues


204,957



438



205,395



591,129



531



591,660Costs and expenses:Cost of goods sold (excluding
    amortization)


55,694



(1,057
)


54,637



157,355



(932
)


156,423Selling expenses


59,017



35



59,052



173,286



105



173,391General and administrative expenses


26,665



127



26,792



77,227



380



77,607Research and development costs


28,883



78



28,961



82,166



255



82,421Acquired in-process research and
    development














126,399







126,399Restructuring charges


135







135



506







506Amortization expense


15,782







15,782



46,961







46,961Total costs and expenses


186,176



(817
)


185,359



663,900



(192
)


663,708Income (loss) from operations


18,781



1,255



20,036



(72,771
)


723



(72,048
)Other income (loss), net, including
    translation and exchange


(1,207
)






(1,207
)


(5,629
)






(5,629
)Interest income


3,193







3,193



9,327







9,327Interest expense


(10,077
)






(10,077
)


(29,821
)






(29,821
)Income (loss) from continuing
    operations before income taxes and minority interest


10,690



1,255



11,945



(98,894
)


723



(98,171
)Provision for income taxes


15,319



250



15,569



41,745



595



42,340Minority interest, net


184







184



489







489Loss from continuing operations


(4,813
)


1,005



(3,808
)


(141,128
)


128



(141,000
)Income (loss) from discontinued
    operations


1,123







1,123



(2,368
)






(2,368
)Net loss

$
(3,690
)

$
1,005


$
(2,685
)

$
(143,496
)

$
128


$
(143,368
)Basic and diluted income (loss) per
    share:Loss from continuing operations

$
(0.05
)

$
0.01


$
(0.04
)

$
(1.54
)

$



$
(1.54
)Income (loss) from discontinued
    operations


0.01







0.01



(0.03
)






(0.03
)Basic and diluted net loss per share

$
(0.04
)

$
0.01


$
(0.03
)

$
(1.57
)

$



$
(1.57
)Basic and diluted shares used in
    per share computation


92,626







92,626



91,357







91,357  15




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Nine Months EndedSeptember 30,2005





2005As Previously


Adjustments


As RestatedReportedCash flows from operating
    activities:Net loss

$
(143,496
)

$
128


$
(143,368
)Income (loss) from discontinued
    operations


(2,368
)






(2,368
)Loss from continuing operations


(141,128
)


128



(141,000
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


68,321







68,321Provision for losses on accounts
    receivable and inventory obsolescence


6,299







6,299Stock compensation expense


1,562



889



2,451Translation and exchange (gains)
    losses, net


5,629







5,629Impairment charges and other
    non-cash items


697







697Acquired in-process research and
    development


126,399







126,399Deferred income taxes


(18,275
)






(18,275
)Change in assets and liabilities,
    net of effects of acquisitions:Accounts receivable


8,157







8,157Inventories


(18,216
)






(18,216
)Prepaid expenses and other assets


2,178



(1,120
)


1,058Trade payables and accrued
    liabilities


9,334



(492
)


8,842Income taxes


14,509



595



15,104Other liabilities


2,035







2,035Cash flow from operating
    activities in continuing operations


67,501







67,501Cash flow from operating
    activities in discontinued operations


(1,522
)






(1,522
)Net cash provided by operating
    activities

$
65,979


$



$
65,979  16




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2005As Previouslyreported


Adjustments


As Restated(Amounts in Thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
224,856


$



$
224,856Marketable securities


10,210







10,210Accounts receivable, net


187,987







187,987Inventories, net


136,034







136,034Prepaid expenses and other current
    assets


36,652



3,702



40,354Total current assets


595,739



3,702



599,441Property, plant and equipment, net


230,126







230,126Deferred tax assets, net


45,904



(20,562
)


25,342Goodwill


79,486







79,486Intangible assets, net


536,319







536,319Other assets


43,176







43,176Total non-current assets


935,011



(20,562
)


914,449Assets of discontinued operations


127







127$
1,530,877


$
(16,860
)

$
1,514,017LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables

$
55,279


$



$
55,279Accrued liabilities


136,701



4,137



140,838Notes payable and current portion
    of long-term debt


495







495Income taxes


42,452



4,872



47,324Total current liabilities


234,927



9,009



243,936Long-term debt, less current
    portion


788,439







788,439Deferred tax liabilities, net


28,770



(20,562
)


8,208Other liabilities


16,372







16,372Total non-current liabilities


833,581



(20,562
)


813,019Liabilities of discontinued
    operations


23,118







23,118Stockholders Equity:Common Stock


928







928Additional capital


1,203,814



21,093



1,224,907Accumulated deficit


(743,950
)


(26,400
)


(770,350
)Accumulated other comprehensive
    income (loss)


(21,541
)






(21,541
)Total stockholders equity


439,251



(5,307
)


433,944$
1,530,877


$
(16,860
)

$
1,514,017  17




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Restructuring    Accounting for the Impairment or Disposal of Long-lived
    Assets
        Three Months Ended


Nine Months EndedRestructuring Charge Details

September 30, 2006


September 30, 2006(In thousands)Employee Severances (200 Employees)

$
1,922


$
13,935Contract cancellation and other
    cash costs


665



1,657Subtotal: Cash-related Charges


2,587



15,592Abandoned software and other
    capital assets


193



21,546Impairment of fixed assets


14,359



59,549Subtotal: Non-cash charges


14,552



81,095Total:

$
17,139


$
96,687  18




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
      Three Months EndedMarch 31, 2006


June 30, 2006


September 30, 2006(In thousands)Opening accrual

$



$
5,425


$
8,551Charges to earnings


6,644



6,361



2,587Cash paid


(1,219
)


(3,235
)


(6,685
)Closing accrual

$
5,425


$
8,551


$
4,453       4.
    Acquisitions  Infergen:
  Xcel Pharmaceuticals, Inc.:
   19




---



##### Table of Contents



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


Nine MonthsEnded


EndedSeptember 30,


September 30,2005


2005(Restated)


(Restated)Net revenues

$
215,557


$
628,533Loss from continuing operations


(10,252
)


(167,301
)Net loss


(9,129
)


(169,666
)Basic and diluted net loss per
    share:Loss from continuing operations

$
(0.11
)

$
(1.81
)Net loss

$
(0.10
)

$
(1.83
)     5.
    Discontinued
    Operations   20




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Revenues

$



$
1,319


$



$
9,041Income (loss) before income taxes

$
6,064


$
(192
)

$
5,739


$
(3,898
)Provision for income taxes














Income (loss) from discontinued
    operations, net


6,064



(192
)


5,739



(3,898
)Income (loss) on disposal of
    discontinued operations


1,482



1,315



1,398



1,530Income (loss) from discontinued
    operations

$
7,546


$
1,123


$
7,137


$
(2,368
)     September 30,


December 31,2006


2005Cash

$
136


$
47Accounts receivable, net


524



45Property, plant and equipment, net






18Other assets






17Assets of discontinued operations

$
660


$
127Accounts payable

$
7


$
13Accrued liabilities


13,134



19,118Other liabilities


4,206



3,987Liabilities of discontinued
    operations

$
17,347


$
23,118    21




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   6.
    Earnings
    Per Share    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)Income (loss):Numerator for basic and diluted
    earnings per share  income (loss) to stockholdersContinuing operations

$
6,161


$
(3,808
)

$
(41,918
)

$
(141,000
)Discontinued operations


7,546



1,123



7,137



(2,368
)Net income (loss)

$
13,707


$
(2,685
)

$
(34,781
)

$
(143,368
)Shares:Denominator for basic earnings per
    share  weighted-average shares outstanding


93,093



92,626



92,907



91,357Effect of dilutive securities:Employee stock options


1,939











Other dilutive securities


232











Dilutive potential common shares


2,171











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


95,264



92,626



92,907



91,357Basic income (loss) per share:Income (loss) from continuing
    operations

$
0.07


$
(0.04
)

$
(0.45
)

$
(1.54
)Income (loss) from discontinued
    operations


0.08



0.01



0.08



(0.03
)Basic net income (loss) per share

$
0.15


$
(0.03
)

$
(0.37
)

$
(1.57
)Diluted net income (loss) per
    share:Income (loss) from continuing
    operations

$
0.06


$
(0.04
)

$
(0.45
)

$
(1.54
)Income (loss) from discontinued
    operations


0.08



0.01



0.08



(0.03
)Diluted net income (loss) per share

$
0.14


$
(0.03
)

$
(0.37
)

$
(1.57
)      22




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Detail of
    Certain Accounts    September 30,


December 31,2006


2005(Restated)Accounts receivable,
    net:Trade accounts receivable

$
153,717


$
153,497Royalties receivable


20,236



27,306Other receivables


44,573



12,669218,526



193,472Allowance for doubtful accounts


(6,703
)


5,485$
211,823


$
187,987Inventories, net:Raw materials and supplies

$
38,637


$
34,931Work-in-process


25,384



28,726Finished goods


102,375



85,152166,396



148,809Allowance for inventory
    obsolescence


(17,818
)


(12,775
)$
148,578


$
136,034   Intangible assets:
  September 30, 2006


December 31, 2005:


WeightedGross


Accumulated


Net


Gross


Accumulated


Net


Average


Estimated Amortization ExpenseAmount


Amortization


Amount


Amount


Amortization


Amount


Lives


2006


2007


2008


2009


2010


2011Neurology

$
237,489


$
(71,736
)

$
165,753


$
236,813


$
(54,111
)

$
182,702



13


$
23,188


$
23,188


$
23,188


$
23,147


$
21,758


$
17,467Infectious Disease


72,480



(8,280
)


64,200



72,480



(3,060
)


69,420



11



6,960



6,960



6,960



6,960



6,960



6,960Dermatology


83,852



(41,473
)


42,379



84,013



(38,045
)


45,968



19



4,671



4,671



4,671



4,670



4,666



7,097Other Products


377,430



(180,905
)


196,525



370,347



(162,164
)


208,183



11



22,938



23,560



22,799



21,992



22,133



16,909Total Product Rights


771,251



(302,394
)


468,857



763,653



(257,380
)


506,273



14



57,757



58,379



57,618



56,769



55,517



48,433License Agreements


67,376



(46,781
)


20,595



67,376



(37,330
)


30,046



5



12,536



11,338



6,172











Total

$
838,627


$
(349,175
)

$
489,452


$
831,029


$
(294,710
)

$
536,319






$
70,293


$
69,717


$
63,790


$
56,769


$
55,517


$
48,433    23




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Income
    Taxes        9.
    Common
    Stock and Share Compensation    2006 Equity Incentive Plan:
 24




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   Stock Options Issued Under our Equity Incentive
    Plans:
  WeightedAverageNumber of


ExerciseShares


PriceShares under option,
    December 31, 2004


13,336


$
17.93Granted


2,192



18.16Exercised


(160
)


20.10Canceled


(736
)


22.28Shares under option,
    December 31, 2005


14,632



17.80Granted


187



17.15Exercised


(520
)


13.54Canceled


(1,233
)


20.57Shares Under Option,
    September 30, 2006


13,066


$
17.60Exercisable at December 31,
    2005


7,197


$
17.82Exercisable at September 30,
    2006


8,114


$
17.14Options available for grant at
    December 31, 2005


513Options available for grant at
    September 30, 2006


5,742     Outstanding


Exercisable


WeightedWeighted





Weighted


AverageAverage





Average


RemainingNumber


Exercise


Number


Exercise


ContractualRange of Exercise Prices

of Shares


Price


of Shares


Price


Life (Years)$8.10 to $13.83


4,445


$
10.20



3,660


$
10.10



6.26$14.99 to $18.55


4,624


$
17.99



1,895


$
18.18



7.89$18.70 to $46.25


3,997


$
25.39



2,559


$
26.44



6.6513,066







8,114     2006


2005Weighted-average life (years)


4.1



4.1Volatility


38
%


41
%Expected dividend per share

$
0.31


$
0.31Risk-free interest rate


4.88
%


4.33
%Weighted-average fair value of
    options (restated)

$
5.33


$
6.10    25




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Restricted Stock Units Issued Under our Incentive
    Plan:
  2003 Employee Stock Purchase Plan:
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)Employee stock options

$
5,123


$
289


$
14,529


$
889Phantom and restricted stock units


462



510



1,485



1,562Employee stock purchase plan


69







337



Total stock compensation expense

$
5,654


$
799


$
16,351


$
2,451  26




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)Cost of goods sold

$
225


$
63


$
1,026


$
188Selling expenses


745



35



2,458



105General and administrative expenses


4,151



480



10,751



1,485Research and development costs


533



221



2,116



673$
5,654


$
799


$
16,351


$
2,451     Amortization of Stock Compensation
    ExpenseRemainder of 2006

$
3,0432007


7,2272008


2,8002009 and thereafter


747$
13,817   10.
    Legal
    Proceedings and Contingencies    Securities
    Class Actions:
  Derivative Actions Related to Ribapharm
    Bonuses: James Herrig, IRA v. Milan
    Panic et al. and/or
  Paul Gerstley v. Norman
    Barker, Jr. et al.
   27




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Ribapharm Bonuses.
    Derivative Actions Related to Stock
    Options: and/or
  Patent Oppositions:
 28




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
      Argentina Antitrust Matter:
  Permax Product Liability Cases.
  Kali Litigation: No. 76-843 ® No. 04-3238 No. 76-843
    Trademark litigation:
 29




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Former ICN Yugoslavia Employees:
  Republic of Serbia litigation:
  Other:
  11.
    Business
    Segments    
    North America, comprising the United States and Canada.
    International. The Latin America, Asia, and Australasia regions
    are now described as International.
    Europe, Middle East, and Africa (EMEA).     30




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)RevenuesSpecialty pharmaceuticalsNorth America

$
71,225


$
60,962


$
219,385


$
170,396International


60,530



56,178



170,191



152,524EMEA


67,251



66,302



199,587



203,246Total specialty pharmaceuticals


199,006



183,442



589,163



526,166Ribavirin royalties


20,968



21,953



60,694



65,494Consolidated revenues

$
219,974


$
205,395


$
649,857


$
591,660Operating Income
    (Loss)Specialty pharmaceuticalsNorth America


16,433



16,555



53,658



49,893International


18,589



17,235



50,695



42,996EMEA


10,658



10,566



27,268



31,44845,680



44,356



131,621



124,337Corporate expenses(1)


(16,712
)


(15,257
)


(55,272
)


(44,594
)Total specialty pharmaceuticals


28,968



29,099



76,349



79,743Restructuring charges(2)


(17,139
)


(135
)


(96,687
)


(506
)Gain on litigation settlement


17,550







51,550Research and development


(3,366
)


(8,930
)


(26,340
)


(24,887
)Acquired IPR&D(2)














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


26,013



20,034



4,872



(72,049
)Interest income


3,209



3,194



8,582



9,327Interest expense


(10,960
)


(10,078
)


(32,259
)


(29,821
)Other, net


(454
)


(1,207
)


1,240



(5,629
)Income (loss) from continuing
    operations before provision for income taxes and minority
    interest

$
17,808


$
11,943


$
(17,565
)

$
(98,172
)     (1)
    
    All stock-based compensation expense has been considered a
    corporate cost as management excludes this item in assessing the
    financial performance of individual business segments and
    considers it a function of valuation factors that pertain to
    overall corporate stock performance.(2)
    
    Restructuring charges and IPR&D are not included in the
    applicable segments as management excludes these items in
    assessing the financial performance of these segments, primarily
    due to their non-operational nature. 31




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
     Total AssetsSeptember 30,


December 31,2006


2005(Restated)North America

$
482,850


$
502,895International


290,220



289,427EMEA


399,049



373,709Corporate


184,724



235,190Research and Development Division


108,783



112,669Discontinued operations


660



127Total

$
1,466,286


$
1,514,017     Long Term AssetsSeptember 30,


December 31,2006


2005(Restated)North America

$
382,441


$
426,745International


156,566



167,036EMEA


115,147



129,952Corporate


61,049



138,239Research and Development Division


37,953



52,477Discontinued operations


660



127Total

$
753,816


$
914,576     Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)DermatologyEfudix/Efudex®(P)

$
15,502


$
14,365


$
46,061


$
45,872Kinerase®(P)


6,622



5,921



22,506



16,177Oxsoralen-Ultra®(P)


613



449



7,714



7,544Dermatixtm(P)


2,553



2,249



7,364



6,711Eldoquin(P)


1,935



2,000



4,688



4,521Other Dermatology


8,380



8,590



26,206



23,100Infectious DiseaseInfergen®(P)(a)


9,134







34,148



Virazole®(P)


2,142



3,377



11,723



11,704Other Infectious Disease


4,448



4,952



14,069



15,049 32




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Restated)





(Restated)NeurologyDiastat(P)(b)


14,802



17,525



38,533



36,993Mestinon®(P)


11,449



12,206



33,592



32,500Cesamet(P)


6,487



2,919



13,832



6,893Librax(P)


3,002



4,042



10,926



9,792Dalmane/Dalmadorm(P)


2,538



2,597



7,548



8,568Migranal(P)(b)


1,133



3,744



6,949



8,648Tasmar®(P)


1,721



1,430



4,548



4,348Limbitrol(P)


1,635



1,438



4,487



3,910Zelapar(P)


3,824







3,824



Other Neurology


15,938



10,958



46,103



37,050Other Therapeutic
    ClassesBedoyectatm(P)


13,879



14,549



36,970



34,769Solcoseryl(P)


4,908



5,837



12,882



13,942Bisocard(P)


4,045



3,284



11,522



9,303Nyal(P)


2,134



4,191



8,691



12,031Espaven(P)


3,340



2,324



7,625



5,395Calcitonin(P)


1,149



1,835



5,227



7,154Espacil(P)


1,235



1,909



4,092



4,000Aclotin(P)


1,364



1,379



3,956



4,269Other Pharmaceutical Products


53,094



49,372



153,377



155,923Total product sales

$
199,006


$
183,442


$
589,163


$
526,166Total Promoted Product sales(P)

$
117,146


$
109,570


$
349,408


$
295,044     (a)
    
    Infergen was acquired from InterMune on December 30, 2005.(b)
    
    Diastat and Migranal were acquired with the Xcel transaction on
    March 1, 2005.(P)
    
    Promoted Products represent products promoted in at least one
    major territory with estimated global annual sales greater than
    $5 million.    12.
    Subsequent
    Events  Form 10-Q
 33




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q
  Form 10-Q
       34




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Restatement
    of Consolidated Financial Statements
  Form 10-K 10-K), Form 10-K/A
  Form 10-Q Form 10-Q
  ®
    e-mail
   35




---



##### Table of Contents



Options
    Granted Prior to the Change in Control
  in-the-money
        Accounting for Certain
    Transactions involving Stock Compensation
    in-the-money,
 36




---



##### Table of Contents



in-the-money
  Cash
    Surrender of Options at Change in Control in 2002
    in-the-money
  Options
    Granted After the Change in Control
    in-the-money
   37




---



##### Table of Contents



rank-and-file
    New
    Hire Grant Practices
      Income
    Tax Effects
       38




---



##### Table of Contents



Summary
    and Other Items
    Six Months




















TotalEnded

















Cumulative


AdditionalJune 30,


Year Ended December 31,


Effect


Expense2006


2005


2004


2003


2002


2001


1982-2000


(Income)(In thousands)Stock option grants prior to 2002
    Change in Control:Broad-based option grants with
    improper measurement dates

$



$



$



$



$
2,657


$
2,701


$
6,130


$
11,488Option grants to directors with
    improper measurement dates


















119



9



20



148Other option grants with improper
    measurement dates


















546



999



2,993



4,538Repriced option grant


















(482
)


783



696



997Improper measurement dates for
    option grants
    1982-1994


























1,375



1,375Incremental charge in connection
    with Change in Control


















10,105











10,105Sub-total
    pre-Change in Control


















12,945



4,492



11,214



28,651Stock option grants after 2002
    Change in Control:Company-wide option grants with
    improper measurement dates


(3
)


1,171



1,085



172















2,425Other stock option matters after
    June 2002






22



(7
)


20















35Sub total post-Change in Control


(3
)


1,193



1,078



192















2,460Total impact of additional stock
    compensation on operating income


(3
)


1,193



1,078



192



12,945



4,492



11,214



31,111Other items corrected in connection
    with restatement


(1,772
)


(2,273
)


(1,265
)


(90
)


1,209



(1,184
)


7,741



2,366Tax effects of above and other tax
    items


(1,170
)


963



(14,957
)


1,785



(4,461
)


(2,471
)


10,289



(10,022
)Net income decrease (increase)
    resulting from all restatement items

$
(2,945
)

$
(117
)

$
(15,144
)

$
1,887


$
9,693


$
837


$
29,244


$
23,455  39




---



##### Table of Contents



Form 10-K. Form 10-K/A.
 40




---



##### Table of Contents



Three Months Ended


Nine Months EndedSeptember 30, 2005


September 30, 2005As








AsPreviously








PreviouslyReported


Adj.


As Restated


Reported


Adj.


As Restated(In thousands, except per share data)


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

$
183,004


$
438


$
183,442


$
525,635


$
531


$
526,166Ribavirin royalties


21,953







21,953



65,494







65,494Total revenues


204,957



438



205,395



591,129



531



591,660Costs and expenses:Cost of goods sold (excluding
    amortization)


55,694



(1,057
)


54,637



157,355



(932
)


156,423Selling expenses


59,017



35



59,052



173,286



105



173,391General and administrative expenses


26,665



127



26,792



77,227



380



77,607Research and development costs


28,883



78



28,961



82,166



255



82,421Acquired in-process research and
    development














126,399







126,399Restructuring charges


135







135



506







506Amortization expense


15,782







15,782



46,961







46,961Total costs and expenses


186,176



(817
)


185,359



663,900



(192
)


663,708Income (loss) from operations


18,781



1,255



20,036



(72,771
)


723



(72,048
)Other income (loss), net,
    including translation and exchange


(1,207
)






(1,207
)


(5,629
)






(5,629
)Interest income


3,193







3,193



9,327







9,327Interest expense


(10,077
)






(10,077
)


(29,821
)






(29,821
)Income (loss) from continuing
    operations before income taxes and minority interest


10,690



1,255



11,945



(98,894
)


723



(98,171
)Provision for income taxes


15,319



250



15,569



41,745



595



42,340Minority interest, net


184







184



489







489Loss from continuing operations


(4,813
)


1,005



(3,808
)


(141,128
)


128



(141,000
)Income (loss) from discontinued
    operations


1,123







1,123



(2,368
)






(2,368
)Net loss

$
(3,690
)

$
1,005


$
(2,685
)

$
(143,496
)

$
128


$
(143,368
)Basic and diluted income (loss)
    per share:Loss from continuing operations

$
(0.05
)

$
0.01


$
(0.04
)

$
(1.54
)

$



$
(1.54
)Income (loss) from discontinued
    operations


0.01







0.01



(0.03
)






(0.03
)Basic and diluted net loss per
    share

$
(0.04
)

$
0.01


$
(0.03
)

$
(1.57
)

$



$
(1.57
)Basic and diluted shares used in
    per share computation


92,626







92,626



91,357







91,357  41




---



##### Table of Contents



Nine Months EndedSeptember 30,2005





2005As PreviouslyReported


Adjustments


As RestatedCash flows from operating
    activities:Net loss

$
(143,496
)

$
128


$
(143,368
)Income (loss) from discontinued
    operations


(2,368
)






(2,368
)Loss from continuing operations


(141,128
)


128



(141,000
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


68,321







68,321Provision for losses on accounts
    receivable and inventory obsolescence


6,299







6,299Stock compensation expense


1,562



889



2,451Translation and exchange (gains)
    losses, net


5,629







5,629Impairment charges and other
    non-cash items


697







697Acquired in-process research and
    development


126,399







126,399Deferred income taxes


(18,275
)






(18,275
)Change in assets and liabilities,
    net of effects of acquisitions:






Accounts receivable


8,157







8,157Inventories


(18,216
)






(18,216
)Prepaid expenses and other assets


2,178



(1,120
)


1,058Trade payables and accrued
    liabilities


9,334



(492
)


8,842Income taxes


14,509



595



15,104Other liabilities


2,035







2,035Cash flow from operating
    activities in continuing operations


67,501







67,501Cash flow from operating
    activities in discontinued operations


(1,522
)






(1,522
)Net cash provided by operating
    activities

$
65,979


$



$
65,979  42




---



##### Table of Contents



December 31, 2005As PreviouslyReported


Adjustments


As Restated(Amounts in thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
224,856


$



$
224,856Marketable securities


10,210







10,210Accounts receivable, net


187,987







187,987Inventories, net


136,034







136,034Prepaid expenses and other current
    assets


36,652



3,702



40,354Total current assets


595,739



3,702



599,441Property, plant and equipment, net


230,126







230,126Deferred tax assets, net


45,904



(20,562
)


25,342Goodwill


79,486







79,486Intangible assets, net


536,319







536,319Other assets


43,176







43,176Total non-current assets


935,011



(20,562
)


914,449Assets of discontinued operations


127







127$
1,530,877


$
(16,860
)

$
1,514,017LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables

$
55,279


$



$
55,279Accrued liabilities


136,701



4,137



140,838Notes payable and current portion
    of long-term debt


495







495Income taxes


42,452



4,872



47,324Total current liabilities


234,927



9,010



243,936Long-term debt, less current
    portion


788,439







788,439Deferred tax liabilities, net


28,770



(20,562
)


8,208Other liabilities


16,372







16,372Total non-current liabilities


833,581



(20,562
)


813,019Liabilities of discontinued
    operations


23,118







23,118Stockholders Equity:Common Stock


928







928Additional capital


1,203,814



21,093



1,224,907Accumulated deficit


(743,950
)


(26,400
)


(770,350
)Accumulated other comprehensive
    income (loss)


(21,541
)






(21,541
)Total stockholders equity


439,251



(5,308
)


433,944$
1,530,877


$
(16,860
)

$
1,514,017  43




---



##### Table of Contents



Overview
      Specialty
    Pharmaceuticals
  Specialty Pharmaceutical Revenues:
  Clinical
    Development
      Ribavirin
    Royalties
  year-to-date
  Company
    Strategy and Restructuring
    Targeted Growth Opportunities.
 44




---



##### Table of Contents



Product Acquisitions.
  Efficient Manufacturing and Supply Chain
    Organization.
  Clinical Development Activities.
    
    North America, comprising the United States and Canada.
    International. The Latin America, Asia, and Australasia regions
    are now described as International.
    Europe, Middle East, and Africa (EMEA).    Accounting for the Impairment or Disposal of Long-lived
    Assets
 45




---



##### Table of Contents



Accounting
    for the Impairment or Disposal of Long-Lived Assets
  Restructuring
    Charge Details
  Three Months Ended


Nine Months Ended


Anticipated TotalSeptember 30, 2006


September 30, 2006


Restructuring Change(In thousands)Employee Severances (200 Employees)

$
1,922


$
13,935


$
15,000 - 20,000Contract cancellation and other
    cash costs


665



1,657



1,000 - 2,000Subtotal: Cash-related Charges


2,587



15,592



16,000 - 22,000Abandoned software and other
    capital assets


193



21,546



23,000 - 26,000Impairment of fixed assets


14,359



59,549



51,000 - 77,000Subtotal: Non-cash charges


14,552



81,095



74,000 - 103,000Total:

$
17,139


$
96,687


$
90,000 - 125,000     Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
  Three Months EndedMarch 31, 2006


June 30, 2006


September 30, 2006(In thousands)Opening accrual

$



$
5,425


$
8,551Charges to earnings


6,644



6,361



2,587Cash paid


(1,219
)


(3,235
)


(6,685
)Closing accrual

$
5,425


$
8,551


$
4,453   Results
    of Operations
   46




---



##### Table of Contents



Three Months EndedSeptember 30,


Increase/


Percent2006


2005


(Decrease)


Change(Restated)RevenuesSpecialty pharmaceuticalsNorth America

$
71,225


$
60,962


$
10,263



17
%International


60,530



56,178



4,352



8EMEA


67,251



66,302



949



1Total specialty pharmaceuticals


199,006



183,442



15,564



8Ribavirin royalties


20,968



21,953



(985
)


(4
)Total revenues


219,974



205,395



14,579



7Costs and ExpensesCost of goods sold (excluding
    amortization)


60,305



54,637



5,668



10Selling expenses


67,582



59,052



8,530



14General and administrative expenses


27,212



26,792



420



2Research and development costs


20,849



28,961



(8,112
)


(28
)Gain on litigation settlement


(17,550
)






(17,550
)


NMRestructuring charges


17,139



135



17,004



NMAmortization expense


18,424



15,782



2,642



17Operating income

$
26,013


$
20,036


$
5,977



(30
)Gross profit on product sales
    (excluding amortization)

$
138,701


$
128,805


$
9,896



8Gross profit margin on product
    sales


70
%


70
%   Nine Months EndedSeptember 30,


Increase/


Percent2006


2005


(Decrease)


Change(Restated)RevenuesSpecialty pharmaceuticalsNorth America

$
219,385


$
170,396


$
48,989



29
%International


170,191



152,524



17,667



12EMEA


199,587



203,246



(3,659
)


(2
)Total specialty pharmaceuticals


589,163



526,166



62,997



12Ribavirin royalties


60,694



65,494



(4,800
)


(7
)Total revenues


649,857



591,660



58,197



10Costs and ExpensesCost of goods sold (excluding
    amortization)


184,665



156,423



28,242



18Selling expenses


198,127



173,391



24,736



14General and administrative expenses


86,325



77,607



8,718



11Research and development costs


77,270



82,421



(5,151
)


(6
)IPR&D






126,399



(126,399
)


NMGain on litigation settlement


(51,550
)






(51,550
)


NMRestructuring charges


96,687



506



96,181



NMAmortization expense


53,461



46,961



6,500



14Operating loss

$
4,872


$
(72,048
)

$
76,920



(107
)Gross profit on product sales
    (excluding amortization)

$
404,498


$
369,743


$
34,755



9Gross profit margin on product
    sales


69
%


70
%  47




---



##### Table of Contents



Ribavirin Royalties:
  Gross Profit Margin (excluding
    amortization):
  Selling Expenses:
 48




---



##### Table of Contents



General and Administrative Expenses:
  Research and Development:
  Acquired In-Process Research and
    Development:
  Gain on Litigation Settlement:
  Restructuring Charges:
  Amortization:
  Other Income (expense), Net, Including Translation and
    Exchange:
  Interest Expense, net:
  Income Taxes:
 49




---



##### Table of Contents



Income from Discontinued Operations, Net of
    Taxes:
  Liquidity
    and Capital Resources
              Form 10-Q Form 10-Q
  Form 10-Q
 50




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  Form 10-K.
  Products
    in Development
  Late
    Stage Development of New Chemical Entities
  Viramidine (taribavirin):
    38-40 percent
  30 mg/kg
  12-week
    Retigabine: End-of-Phase 2
 51




---



##### Table of Contents



Other
    Development Activities
  Infergen:
  24-week 48-week end-of-treatment end-of-treatment
  follow-up
  10 24-week
  Zelapar: ®
  Pradefovir (formerly called
    remofovir):
 52




---



##### Table of Contents



once-a-day
      Foreign
    Operations
      Critical
    Accounting Estimates
      Revenue
    Recognition
       53




---



##### Table of Contents



Sales
    Incentives
  ordinary-course-of-business
  Income
    Taxes
   54




---



##### Table of Contents



Impairment
    of Property, Plant and Equipment
    Valuation
    of Intangible Assets
        Purchase
    Price Allocation Including Acquired In-Process Research and
    Development
   55




---



##### Table of Contents



Assets
    Acquired in Business Combinations to be Used in Research and
    Development Activities: A Focus in Software, Electronic Devices
    and Pharmaceutical Industries.
    Stock-based
    Compensation Expense
     56




---



##### Table of Contents



2006


2005Weighted-average life (years)


4.1



4.1Volatility


38
%


41
%Expected dividend per share

$
0.31


$
0.31Risk-free interest rate


4.88
%


4.33
%Weighted-average fair value of
    options (restated)

$
5.33


$
6.10         Contingencies
  Accounting for Contingencies
  Other
    Financial Information
    Forward-Looking
    Statements
  Form 10-Q Form 10-Q,
 57




---



##### Table of Contents



Form 10-K/A Form 10-Q
    
    The future growth of our business depends on the development,
    approval, and commercialization of new products, including
    Viramidine (taribavirin) and retigabine. The process of
    developing new drugs has an inherent risk of failure. For
    example, product candidates may turn out to be ineffective or
    unsafe in clinical testing; their patent protection may become
    compromised; other therapies may prove safer or more effective;
    or the prevalence of the disease for which they are being
    developed may decrease. Our inability to successfully develop
    our products due to these or other factors could have a material
    adverse effect on future revenues.
    We can protect our products from generic substitution by third
    parties only to the extent that our technologies are covered by
    valid and enforceable patents, are effectively maintained as
    trade secrets or are protected by data exclusivity. However, our
    pending or future patent applications may not issue as patents.
    Any patent issued may be challenged, invalidated, held
    unenforceable or circumvented. Furthermore, our patents may not
    be sufficiently broad to prevent third parties competing
    products. The expiration of patent protection for ribavirin has
    resulted in significant competition from generic substitutes and
    declining royalty revenues and may negatively impact future
    financial results.
    Trade secret protection is less effective than patent protection
    because competitors may discover the technology or develop
    parallel technology.
    The scope of protection afforded by a patent can be highly
    uncertain. A pending claim or a result unfavorable to us in a
    patent dispute may preclude development or commercialization of
    products or impact sales of existing products, result in
    cessation of royalty payments to us
    and/or
    result in payment of monetary damages.
    Obtaining drug approval in the United States and other countries
    is costly and time consuming. Uncertainties and delays inherent
    in the process can preclude or delay development and
    commercialization of our products.
    Our current business plan includes targeted expansion through
    acquisitions of compatible businesses and product lines and the
    formation of strategic alliances, joint ventures and other
    business combinations, in addition to the development of new
    products. If we are unable to successfully execute on our
    expansion plans to find attractive acquisition candidates at
    appropriate prices, and to integrate successfully any acquired
    companies or products, the expected growth of our business may
    be negatively affected.
    We and our competitors are always striving to develop products
    that are more effective, safer, more easily tolerated or less
    costly. If our competitors succeed in developing better
    alternatives to our current products before we do, we will lose
    sales and revenues to their alternative products. If vaccines
    are introduced to prevent the diseases treated by our products,
    our potential sales and revenues will decrease.
    The pharmaceutical industry is subject to substantial government
    regulation, including the approval of new pharmaceutical
    products, labeling, advertising and, in most countries, pricing,
    as well as inspection and approval of manufacturing facilities.
    The costs of complying with these regulations are high, and
    failure to comply could result in fines or interruption in our
    business.
    We collect and pay a substantial portion of our sales and
    expenditures in currencies other than the U.S. dollar. As a
    result, fluctuations in foreign currency exchange rates affect
    our operating results. Additionally, future exchange rate
    movements, inflation or other related factors may have a
    material adverse effect on our sales, gross profit or operating
    expenses. At September 30, 2006 we have in place foreign
    currency hedge 58




---



##### Table of Contents



transactions to reduce our exposure to variability in the Polish
    Zloty. We continue to evaluate the possibility of entering into
    additional hedge arrangements.  
    A significant part of our revenue is derived from products
    manufactured by third parties. We rely on their quality level,
    compliance with the FDA regulations or similar regulatory
    requirements enforced by regulatory agencies in other countries
    and continuity of supply. Any failure by them in these areas
    could disrupt our product supply and negatively impact our
    revenues.
    Our flexibility in maximizing commercialization opportunities
    for our compounds may be limited by our obligations to
    Schering-Plough. In November 2000, we entered into an agreement
    that provides Schering-Plough with an option to acquire the
    rights to up to three of our products intended to treat
    hepatitis C that Schering-Plough designates prior to our
    entering Phase 2 clinical trials and a right for first/last
    refusal to license various compounds we may develop and elect to
    license to others. Viramidine (taribavirin) was not subject to
    the option of Schering-Plough, but it would be subject to their
    right of first/last refusal if we elected to license it to a
    third party. The interest of potential collaborators in
    obtaining rights to our compounds or the terms of any agreement
    we ultimately enter into for these rights may be hindered by our
    agreement with Schering-Plough.
    To purchase our products, many patients rely on reimbursement by
    third party payors such as insurance companies, HMOs and
    government agencies. These third party payors are increasingly
    attempting to contain costs by limiting both coverage and the
    level of reimbursement of new drug products. The reimbursement
    levels established by third party payors in the future may not
    be sufficient for us to realize an appropriate return on our
    investment in product development and our continued manufacture
    and sale of existing drugs.
    All drugs have potential harmful side effects and can expose
    drug manufacturers and distributors to liability. In the event
    one or more of our products is found to have harmed an
    individual or individuals, we may be responsible for paying all
    or substantially all damages awarded. A successful product
    liability claim against us could have a material negative impact
    on our financial position and results of operations.
    Our debt agreements permit us to incur additional debt, subject
    to certain restrictions, but there is no guaranty that we will
    actually be able to borrow any money should the need for it
    arise.
    We are involved in several legal proceedings, including those
    described in Note 10 to notes to consolidated condensed
    financial statements, any of which could result in substantial
    cost and divert managements attention and resources.
    Dependence on key personnel leaves us vulnerable to a negative
    impact if they leave. Our continued success will depend, to a
    significant extent, upon the efforts and abilities of the key
    members of management. The loss of their services could have a
    negative impact on us.
    Our research and development activities involve the controlled
    use of potentially harmful biological materials as wells as
    hazardous materials, chemicals and various radioactive
    compounds. We cannot completely eliminate the risk of accidental
    contamination or injury from the use, storage, handling or
    disposal of these materials. In the event of contamination or
    injury, we could be held liable for damages that result. Any
    liability could exceed our resources.
    Our stockholder rights plan, provisions of our certificate of
    incorporation and provisions of the Delaware General Corporation
    Law could provide our Board of Directors with the ability to
    deter hostile takeovers or delay, deter or prevent a change in
    control of our company, including transactions in which
    stockholders might otherwise receive a premium for their shares
    over then current market prices.
    We are authorized to issue, without stockholder approval,
    approximately 10,000,000 shares of preferred stock,
    200,000,000 shares of common stock and securities
    convertible into either shares of common stock or preferred
    stock. If we issue additional equity securities, the price of
    our securities may be materially and adversely affected. The
    Board of Directors can also use issuances of preferred or common
    stock to deter a hostile takeover or change in control of our
    company.
    We are subject to a consent order with the Securities and
    Exchange Commission, which permanently enjoins us from violating
    securities laws and regulations. The consent order also
    precludes protection for forward-looking statements under the
    safe harbor provisions of the Private Securities Litigation
    Reform Act of 1995 59




---



##### Table of Contents



with respect to forward-looking statements we made prior to
    November 28, 2005. The existence of the permanent
    injunction under the consent order, and the lack of protection
    under the safe harbor with respect to forward-looking statements
    made prior to November 28, 2005 may limit our ability to
    defend against future allegations. 60




---



##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      Notional/


Assets (Liabilities)Contract


Carrying


FairDescription

Amount


Value


ValueForward contracts

$
48,793



336



336Interest rate swaps


150,000



(4,617
)


(4,617
)Outstanding fixed-rate debt


780,000



(780,000
)


(747,800
)      61




---



##### Table of Contents



Item 4.
    Controls
    and Procedures  Form 10-Q,
    e-mail
  Disclosure
    Controls and Procedures
    Form 10-K
     62




---



##### Table of Contents



Remediation
    Plan
    Changes
    in Internal Control over Financial Reporting
   63




---



##### Table of Contents



PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K/A Form 10-Q, Form 10-K/A. Form 10-K/A Form 10-Q.
  If we
    do not realize the expected benefits from the restructuring plan
    we announced in April 2006, our operating results and financial
    conditions would be negatively impacted.
  and/or
  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.
       64




---



##### Table of Contents



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.
  10-K Form 10-Q
    The
    delay in filing this quarterly report on
    Form 10-Q
    may increase the resources to file registration
    statements.
  Form 10-Q Form S-3
 65




---



##### Table of Contents



The
    pending SEC inquiry could adversely affect our business and the
    trading price of our securities.
  ®
  Item 6.
    Exhibits  (a)
    Exhibits  ExhibitNumber

Description15
.1

Review Report of Independent
    Registered Public Accounting Firm.31
.1

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

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

Certification of Chief Executive
    Officer and Chief Financial Officer of Periodic Financial
    Reports pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, 18 U.S.C. § 1350.  66




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##### Table of Contents



SIGNATURES  Form 10-Q
  Valeant Pharmaceuticals
    International
   /s/  Timothy
    C. Tyson   President and Chief Executive Officer
    Bary
    G. Bailey
   Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
   67




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description15
.1

Review Report of Independent
    Registered Public Accounting Firm.31
.1

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

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

Certification of Chief Executive
    Officer and Chief Financial Officer of Periodic Financial
    Reports pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, 18 U.S.C. § 1350.  68