##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 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(State or other
    jurisdiction of
    incorporation or organization)

33-0628076(I.R.S. Employer
    Identification 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
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ




---



##### 



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  INDEX
  PageNumberPART I 
    FINANCIAL INFORMATIONItem 1.

Financial
    Statements


2Consolidated
    Condensed Balance Sheets as of June 30, 2007 and
    December 31, 2006


2Consolidated
    Condensed Statements of Operations for the three months and six
    months ended June 30, 2007 and 2006


3Consolidated
    Condensed Statements of Comprehensive Income (Loss) for the
    three months and six months ended June 30, 2007 and
    2006


4Consolidated
    Condensed Statements of Cash Flows for the six months ended
    June 30, 2007 and 2006


5Notes to
    Consolidated Condensed Financial Statements


6Item 2.

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


26Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


42Item 4.

Controls and
    Procedures


43PART II 
    OTHER INFORMATIONItem 1.

Legal
    Proceedings


43Item 1A.

Risk
    Factors


43Item 4.

Submission of
    Matters to a Vote of Security Holders


44Item 6.

Exhibits


45SIGNATURES


46EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 15.1EXHIBIT 15.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   1




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED BALANCE SHEETSAs of June 30, 2007 and December 31, 2006
    (In thousands, except par value data)
  June 30,


December 31,2007


2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents

$
377,411


$
326,002Marketable securities


9,239



9,743Accounts receivable, net


212,115



227,452Inventories, net


126,249



142,679Assets held for sale






48,515Prepaid expenses and other current
    assets


16,882



16,398Current deferred tax assets, net


6,283



8,071Income taxes


5,817



2,526Total current assets


753,996



781,386Property, plant and equipment, net


101,997



94,279Deferred tax assets, net


63,886



21,514Goodwill


80,162



80,162Intangible assets, net


479,488



474,315Other assets


51,475



53,555Assets of discontinued operations






226Total non-current assets


777,008



724,051$
1,531,004


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

$
52,510


$
60,621Accrued liabilities


127,191



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


2,249



9,237Income taxes


5,311



39,818Total current liabilities


187,261



252,208Long-term debt, less current portion


776,475



778,196Deferred tax liabilities, net


1,447



3,255Liabilities for uncertain tax
    positions


56,176



Other liabilities


24,417



18,182Liabilities of discontinued
    operations


16,956



18,343Total non-current liabilities


875,471



817,976Total liabilities


1,062,732



1,070,184Commitments and contingenciesStockholders Equity:Common stock, $0.01 par value;
    200,000 shares authorized; 93,732 (June 30,
    2007) and 94,415 (December 31, 2006) shares
    outstanding (after deducting shares in treasury of 2,694 as of
    June 30, 2007 and 1,094 as of December 31, 2006)


937



944Additional capital


1,253,562



1,263,318Accumulated deficit


(825,010
)


(848,467
)Accumulated other comprehensive
    income


38,783



19,458Total stockholders equity


468,272



435,253$
1,531,004


$
1,505,437    2




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSFor the three months and six months ended June 30, 2007
    and 2006
    (Unaudited, in thousands, except per share data)
  Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006Revenues:Product sales

$
212,052


$
208,757


$
388,944


$
390,157Alliance revenue (including
    ribavirin royalties)


18,955



21,635



55,425



39,726Total revenues


231,007



230,392



444,369



429,883Costs and expenses:Cost of goods sold (excluding
    amortization)


62,116



65,759



114,214



124,360Selling expenses


74,684



66,270



139,118



130,545General and administrative expenses


28,963



30,668



55,150



59,114Research and development costs


24,617



26,867



47,727



56,421Gain on litigation settlements














(34,000
)Restructuring charges and asset
    impairment


6,337



53,083



13,575



79,549Amortization expense


20,316



17,514



39,447



35,037Total costs and expenses


217,033



260,161



409,231



451,026Income (loss) from operations


13,974



(29,769
)


35,138



(21,143
)Other income (loss), net,
    including translation and exchange


1,682



756



2,818



1,694Interest income


4,769



2,715



9,280



5,372Interest expense


(10,882
)


(10,861
)


(21,834
)


(21,298
)Income (loss) from continuing
    operations before income taxes


9,543



(37,159
)


25,402



(35,375
)Provision (benefit) for income
    taxes


(7,289
)


5,163



3



12,706Income (loss) from continuing
    operations


16,832



(42,322
)


25,399



(48,081
)Loss from discontinued operations


(382
)


(197
)


(381
)


(409
)Net income (loss)

$
16,450


$
(42,519
)

$
25,018


$
(48,490
)Basic income (loss) per share:Income (loss) from continuing
    operations

$
0.18


$
(0.46
)

$
0.27


$
(0.52
)Loss from discontinued operations


(0.01
)






(0.01
)


Basic income (loss) per share:

$
0.17


$
(0.46
)

$
0.26


$
(0.52
)Diluted income (loss) per share:Income (loss) from continuing
    operations

$
0.18


$
(0.46
)

$
0.26


$
(0.52
)Loss from discontinued operations


(0.01
)










Diluted income (loss) per share:

$
0.17


$
(0.46
)

$
0.26


$
(0.52
)Shares used in per share
    computations


94,868



92,818



94,722



92,794Shares used in per share
    computation  Diluted


96,154



92,818



96,091



92,794Dividends paid per share of common
    stock

$



$
0.08


$



$
0.16Dividends declared per share of
    common stock

$



$
0.08


$



$
0.16    3




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALCONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
    (LOSS)For the three months and six months ended June 30, 2007
    and 2006
    (Unaudited, in thousands)
  Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006Net income (loss)

$
16,450


$
(42,519
)

$
25,018


$
(48,490
)Other comprehensive income (loss):Foreign currency translation
    adjustments


12,027



8,280



11,912



10,626Unrealized gain (loss) on
    marketable equity securities and other


7,410



(1,415
)


7,637



(972
)Pension liability adjustment


(217
)


(263
)


(223
)


(295
)Comprehensive income (loss)

$
35,670


$
(35,917
)

$
44,344


$
(39,131
)    4




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##### Table of Contents



VALEANT
    PHARMACEUTICALSCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFor the six months ended June 30, 2007 and 2006
    (Unaudited, in thousands)
  Six Months EndedJune 30,2007


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

$
25,018


$
(48,490
)Loss from discontinued operations


(381
)


(409
)Income (loss) from continuing
    operations


25,399



(48,081
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


47,339



47,071Provision for losses on accounts
    receivable and inventory


5,385



7,671Stock compensation expense


7,494



10,697Translation and exchange gains, net


(2,818
)


(1,694
)Impairment charges and other
    non-cash items


4,483



67,806Deferred income taxes


12,826



(3,787
)Change in assets and liabilities,
    net of effects of acquisitions:Accounts receivable


15,950



(11,428
)Inventories


(4
)


(12,435
)Prepaid expenses and other assets


(2,287
)


376Trade payables and accrued
    liabilities


(20,737
)


3,015Income taxes


(37,730
)


(11,314
)Other liabilities


1,190



1,732Cash flow from operating
    activities in continuing operations


56,490



49,629Cash flow from operating
    activities in discontinued operations


(1,852
)


(418
)Net cash provided by operating
    activities


54,638



49,211Cash flows from investing
    activities:Capital expenditures


(15,598
)


(19,840
)Proceeds from sale of assets


37,282



8,037Proceeds from sale of businesses


29,486



Proceeds from investments


15,122



8,165Purchase of investments


(17,100
)


(8,900
)Acquisition of businesses, license
    rights and product lines


(35,287
)


(2,932
)Cash flow from investing
    activities in continuing operations


13,905



(15,470
)Cash flow from investing
    activities in discontinued operations






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


13,905



(15,471
)Cash flows from financing
    activities:Proceeds from issuance of
    long-term debt


1,518



Payments on long-term debt and
    notes payable


(9,163
)


(6,137
)Proceeds capitalized lease
    financing and long-term debt






578Stock option exercises and
    employee stock purchases


10,251



2,395Purchase of treasury stock


(27,507
)


Dividends paid






(14,354
)Net cash used in financing
    activities


(24,901
)


(17,518
)Effect of exchange rate changes on
    cash and cash equivalents


7,564



3,501Net increase in cash and cash
    equivalents


51,206



19,723Cash and cash equivalents at
    beginning of period


326,205



224,903Cash and cash equivalents at end
    of period


377,411



244,626Cash and cash equivalents
    classified as part of discontinued operations






(19
)Cash and cash equivalents of
    continuing operations

$
377,411


$
244,607    5




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONALNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTSJune 30, 2007
    (Unaudited)
  Form 10-K
  1.
    Organization
    and Summary of Significant Accounting Policies  Organization:
  Principles of Consolidation:
  Marketable Securities:
  Derivative Financial Instruments:
  Comprehensive Income: Reporting Comprehensive
    Income.
  Per Share Information:
  Stock-Based Compensation Expense:
 6




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Assets Held for Sale:
  Use of Estimates:
  Treasury Stock.
  Recent
    Accounting Pronouncements:
  FIN 48.
    SFAS No. 157.
  SFAS 159. (
 7




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    EITF 06-3. No. 06-3, (EITF 06-3). EITF 06-3 EITF 06-3 EITF 06-3
  2.
    Restructuring      24-month
   8




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
      Restructuring
    Charge Details (in thousands)
  Three Months


Six Months


YearEnded


Ended


EndedJune 30,


June 30,


December 31,2006


2006


2006Employee severances

$
5,369


$
12,013


$
16,997Contract cancellation and other
    cash costs


992



992



1,662Subtotal: cash charges


6,361



13,005



18,659Abandoned software and other
    capital assets


3,031



22,853



22,178Impairment of manufacturing and
    research facilities


43,690



43,690



97,344Subtotal: non-cash charges


46,721



66,543



119,522Total:

$
53,082


$
79,548


$
138,181   Three Months


Six Months


CumulativeEnded


Ended


TotalJune 30,


June 30,


Incurred2007


2007Employee severances (approximately
    490 employees)

$
1,350


$
5,130


$
22,127Contract cancellation and other
    cash costs


1,034



3,115



4,777Subtotal: cash charges


2,384



8,245



26,904Abandoned software and other
    capital assets










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


2,891



2,891



2,891Impairment of manufacturing and
    research facilities


1,062



2,439



99,783Subtotal: non-cash charges


3,953



5,330



124,852Total:

$
6,337


$
13,575


$
151,756   Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
   9




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31,


June 30,2007


2007Opening accrual

$
5,216


$
5,931Charges to earnings


5,861



2,384Transition and capital expenditure
    payment obligations


163



6,650Cash paid


(5,309
)


(4,988
)Closing accrual

$
5,931


$
9,977   3.
    Acquisitions  paid-up
    4.
    Discontinued
    Operations    Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006Revenue

$



$



$



$
Income (loss) before income taxes

$



$
(82
)

$



$
(325
)Income tax provision














Income (loss) from discontinued
    operations, net






(82
)






(325
)Income (loss) on disposal of
    discontinued operations


(382
)


(114
)


(381
)


(83
)Income (loss) from discontinued
    operations

$
(382
)

$
(196
)

$
(381
)

$
(408
)  10




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##### Table of Contents



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


December 31,2007


2006Cash

$



$
203Accounts receivable, net






21Deferred taxes and other assets






2Assets of discontinued operations

$



$
226Accounts payable

$



$
Accrued liabilities


11,340



12,777Other liabilities


5,616



5,566Liabilities of discontinued
    operations

$
16,956


$
18,343    11




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,2007


2006


2007


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

$
16,832


$
(42,322
)

$
25,399


$
(48,081
)Loss from discontinued operations


(382
)


(197
)


(381
)


(409
)Net income (loss)

$
16,450


$
(42,519
)

$
25,018


$
(48,490
)Shares:Denominator for basic earnings per
    share  weighted-average shares outstanding


94,868



92,818



94,722



92,794Employee stock options


1,068







1,159



Other dilutive securities


218







210



Dilutive potential common shares


1,286







1,369



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


96,154



92,818



96,091



92,794Basic earnings (loss) per share:Income (loss) from continuing
    operations

$
0.18


$
(0.46
)

$
0.27


$
(0.52
)Discontinued operations, net of
    taxes


(0.01
)






(0.01
)


Basic net income (loss) per share

$
0.17


$
(0.46
)

$
0.26


$
(0.52
)Diluted earnings (loss) per share:Income (loss) from continuing
    operations

$
0.18


$
(0.46
)

$
0.26


$
(0.52
)Discontinued operations, net of
    taxes


(0.01
)










Diluted net income (loss) per share

$
0.17


$
(0.46
)

$
0.26


$
(0.52
)      12




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Detail of
    Certain Accounts    June 30,


December 31,2007


2006Accounts receivable,
    net:Trade accounts receivable

$
175,055


$
180,767Royalties receivable


20,806



22,212Other receivables


23,957



31,486219,818



234,465Allowance for doubtful accounts


(7,703
)


(7,013
)$
212,115


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

$
23,496


$
37,045Work-in-process


21,434



21,477Finished goods


95,251



98,454140,181



156,976Allowance for inventory
    obsolescence


(13,932
)


(14,297
)$
126,249


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

$
198,348


$
183,794Accumulated depreciation and
    amortization


(96,351
)


(89,515
)$
101,997


$
94,279   Intangible assets:
  Weighted


June 30, 2007


December 31, 2006Average


Gross


Accumulated


Net


Gross


Accumulated


NetLives


Amount


Amortization


Amount


Amount


Amortization


AmountProduct rightsNeurology


13


$
307,089


$
(115,568
)

$
191,521


$
292,339


$
(100,990
)

$
191,349Infectious diseases


11



72,480



(13,500
)


58,980



72,480



(10,020
)


62,460Dermatology


19



112,062



(48,976
)


63,086



85,337



(42,786
)


42,551Other products


11



332,432



(177,871
)


154,561



325,470



(165,025
)


160,445Total product rights


14



824,063



(355,915
)


468,148



775,626



(318,821
)


456,805License agreement


5



67,376



(56,036
)


11,340



67,376



(49,866
)


17,510Total intangible assets





$
891,439


$
(411,951
)

$
479,488


$
843,002


$
(368,687
)

$
474,315  13




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Scheduled Future Amortization ExpenseRemainingSix Months of2007


2008


2009


2010


2011


ThereafterProduct rightsNeurology

$
14,413


$
28,808


$
28,662


$
28,495


$
21,978


$
65,647Infectious diseases


3,480



6,960



6,960



6,960



6,960



27,660Dermatology


5,091



10,181



10,088



9,976



9,894



17,806Other products


10,146



19,859



19,252



17,735



18,224



72,913Total product rights


33,130



65,808



64,962



63,166



57,056



184,026License agreement


5,168



6,172















Total

$
38,298


$
71,980


$
64,962


$
63,166


$
57,056


$
184,026     7.
    Income
    Taxes    Three MonthsEndedJune 30, 2007Taxes payable on earnings in tax
    jurisdictions outside the U.S.

$
11,556Release of reserves for U.S.
    liabilities recorded in conjunction with settlement of the
    1997  2001 IRS examination


(21,521
)Interest and penalties on U.S.
    liabilities, state taxes and other


2,676$
(7,289
)    14




---



##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    non-U.S. subsidiaries
        8.
    Common
    Stock and Share Compensation   15




---



##### Table of Contents



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


ExerciseShares


PriceShares under option,
    December 31, 2005


14,632


$
17.80Granted


2,014


$
18.54Exercised


(1,592
)

$
19.38Canceled


(1,703
)

$
21.81Shares under option,
    December 31, 2006


13,351


$
18.28Granted


89


$
17.13Exercised


(853
)

$
17.67Canceled


(934
)

$
21.68Shares under option, June 30,
    2007


11,653


$
18.49Exercisable at December 31,
    2005


7,197


$
17.82Exercisable at December 31,
    2006


8,374


$
18.00Exercisable at June 30, 2007


7,620


$
18.12Awards available for grant at
    December 31, 2006


4,376Awards available for grant at
    June 30, 2007


5,168     Outstanding


ExercisableWeighted





Weighted


WeightedAverage





Average


AverageNumber


Exercise


Number


Exercise


RemainingRange of Exercise Prices

of Shares


Price


of Shares


Price


Life (Years)$ 8.10 to $17.72


4,515


$
13.53



3,193


$
11.87



6.22$18.01 to $19.10


3,898


$
18.62



1,906


$
18.56



6.48$19.60 to $46.25


3,240


$
25.26



2,521


$
25.70



5.1311,653







7,620   SFAS No. 123(R) Assumptions and Fair
    Value:
  2007


2006Average life of option (years)


5.73



4.10-5.80Stock price volatility


35%-36%



37%-39%Expected dividend per share

$
0.00


$
0.00-$0.31Risk-free interest rate


4.52%-4.76%



4.54%-4.80%Weighted-average fair value of
    options

$
7.28


$
7.83    16




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    2003 Employee Stock Purchase Plan:
  Restricted Stock Units:
    Six MonthsThree Months Ended


EndedJune 30,


June 30,2007


2006


2007


2006Employee stock options

$
3,193


$
4,544


$
6,691


$
9,405Employee stock purchase plan


53



149



79



269Restricted stock units


267



386



724



1,023Total stock-based compensation
    expense

$
3,513


$
5,079


$
7,494


$
10,697  17




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##### Table of Contents



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


EndedJune 30,


June 30,2007


2006


2007


2006Cost of goods sold


163



365



353



800Selling expenses


949



860



1,942



1,712General and administrative expenses


2,220



3,069



4,713



6,601Research and development costs


181



785



486



1,583Total stock compensation expense

$
3,513


$
5,079


$
7,494


$
10,696     Remainder of 2007

$
5,6322008


6,0032009


2,3422010 and thereafter


728$
14,705   Dividends:
  9.
    Commitments
    and Contingencies      Securities
    Class Actions:
  Derivative Actions Related to Ribapharm
    Bonuses: and/or
  Paul Gerstley v. Norman
    Barker, Jr. et al.
 18




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
        SEC Investigation:
  Derivative Actions Related to Stock
    Option and/or
  and/or
  Patent Oppositions:
 19




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##### 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 ANDA No. 76-843
    Trademark Litigation:
  Former ICN Yugoslavia Employees:
 20




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
    Xcel Pharmaceuticals:
  Other:
 21




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   10.
    Business
    Segments    Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006RevenuesSpecialty pharmaceuticalsNorth America

$
77,962


$
72,304


$
149,532


$
148,160International


56,784



64,472



92,241



109,661EMEA


77,306



71,981



147,171



132,336Total specialty pharmaceuticals


212,052



208,757



388,944



390,157Alliance revenues (including
    ribavirin royalties)


18,955



21,635



55,425



39,726Consolidated revenues

$
231,007


$
230,392


$
444,369


$
429,883Operating Income
    (Loss)Specialty pharmaceuticalsNorth America

$
22,407


$
14,089


$
39,154


$
37,225International


9,322



22,934



9,797



32,106EMEA


16,060



12,393



31,129



16,60947,789



49,416



80,080



85,940Corporate expenses(1)(2)


(19,974
)


(15,418
)


(35,867
)


(38,560
)Total specialty pharmaceuticals


27,815



33,998



44,213



47,380Restructuring charges and asset
    impairment(3)


(6,337
)


(53,083
)


(13,575
)


(79,549
)Gain on litigation settlement














34,000Research and development


(7,504
)


(10,684
)


4,500



(22,974
)Consolidated segment operating
    income (loss)


13,974



(29,769
)


35,138



(21,143
)Interest income


4,769



2,715



9,280



5,372Interest expense


(10,882
)


(10,861
)


(21,834
)


(21,298
)Other, net


1,682



756



2,818



1,694Income (loss) from continuing
    operations before provision for income taxes

$
9,543


$
(37,159
)

$
25,402


$
(35,375
)     (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)
    
    The corporate expense total above includes certain corporate
    marketing expenses in 2007 for our products in development. In
    the three months and the six months ended June 30, 2006,
    $4,700,000 of similar costs were allocated out of the corporate
    segment and reassigned to the research and development division,
    due to the ownership of certain intellectual property by a
    foreign subsidiary within this division. This foreign subsidiary
    no longer owns this intellectual property and the corresponding
    costs in 2007 are recognized as corporate expenses.(3)
    
    Restructuring charges are not included in the applicable
    segments as management excludes these items in assessing the
    financial performance of these segments, primarily due to their
    non-operational nature. 22




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##### Table of Contents



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


December 31,Total Assets

2007


2006North America

$
421,180


$
457,504International


211,005



202,369EMEA


458,061



515,267Corporate


370,522



207,803Research and Development Division


70,236



122,268Discontinued operations






226Total

$
1,531,004


$
1,505,437     June 30,


December 31,Long-term Assets

2007


2006North America

$
348,632


$
353,264International


78,861



58,763EMEA


205,210



201,188Corporate


115,473



75,505Research and Development Division


28,832



35,105Total

$
777,008


$
723,825  23




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,Therapeutic Area/Product

2007


2006


2007


2006NeurologyMestinon®(P)

$
14,031


$
12,326


$
24,582


$
22,143Diastat
    AcuDialtm(P)


12,386



11,709



23,458



23,731Cesamet®(P)


6,860



4,042



12,772



7,345Librax®


4,455



5,005



8,122



7,924Migranal®(P)


3,745



2,701



6,781



5,816Dalmane®/Dalmadorm®(P)


2,757



2,544



5,092



5,010Tasmar®(P)


2,371



1,666



4,353



2,851Melleril(P)


1,813



1,365



3,354



2,773Zelapar®(P)


1,381







1,576



Other Neurology


16,401



15,528



31,993



30,220Total Neurology


66,200



56,886



122,083



107,813DermatologyEfudix/Efudex®(P)


17,518



14,979



29,994



30,560Kinerase®(P)


8,145



9,024



16,526



15,884Oxsoralen-Ultra®(P)


4,053



3,593



7,936



7,101Dermatixtm(P)


3,565



2,977



6,338



4,811Other Dermatology


9,616



12,181



17,455



20,578Total Dermatology


42,897



42,754



78,249



78,934Infectious DiseaseInfergen®(P)


9,353



11,309



18,323



25,014Virazole®(P)


3,084



3,780



8,611



9,581Other Infectious Disease


5,235



4,891



10,394



9,622Total Infectious
    Disease


17,672



19,980



37,328



44,217Other therapeutic
    classesBedoyectatm(P)


12,587



12,512



17,210



23,092Solcoseryl(P)


8,448



4,597



13,795



7,974Bisocard(P)


5,575



3,912



10,269



7,477Nyal(P)


3,991



4,803



5,754



6,557MVI (multi-vitamin infusion)(P)


2,756



3,500



5,249



5,767Espaven(P)


2,247



2,983



4,114



4,285Protamin(P)


1,353



1,773



3,424



3,325Other products


48,326



55,057



91,469



100,716Total other therapeutic classes


85,283



89,137



151,284



159,193Total product sales

$
212,052


$
208,757


$
388,944


$
390,157Total promoted product sales

$
128,019


$
116,095


$
229,511


$
221,097     (P)
    
    Promoted Products represent products promoted in at least one
    major territory with estimated global annual sales greater than
    $5 million. 24




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##### Table of Contents



VALEANT
    PHARMACEUTICALS INTERNATIONAL
  NOTES TO
    CONSOLIDATED CONDENSED FINANCIAL
    STATEMENTS  (Continued)
   (a)
    
    Infergen®
    is a registered trademark of Amgen, Inc. and Valeant
    Pharmaceuticals North America is the exclusive licensee from
    Amgen of this mark in the U.S. market.    11.
    Alliance
    Revenue    For the Three Months Ended


For the Six Months EndedJune 30,


June 30,2007


2006


2007


2006Ribavirin royalty

$
18,955


$
21,635


$
36,175


$
39,726Licensing payment










19,200



Other










50



Total alliance revenue

$
18,955


$
21,635


$
55,425


$
39,726       12.
    Subsequent
    events  24-month
  24-month follow-up
 25




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
      Company
    Strategy and Restructuring
    Targeted Growth Opportunities.
  Product Acquisitions.
  Efficient Manufacturing and Supply Chain
    Organization.
  Clinical Development Activities.
 26




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##### Table of Contents



Results
    of Operations
    ® ® ® tm tm ® ®
    Three Months EndedJune 30,


Increase/


Percent2007


2006


(Decrease)


ChangeRevenuesSpecialty pharmaceuticalsNorth America

$
77,962


$
72,304


$
5,658



8
%International


56,784



64,472



(7,688
)


(12
)%EMEA


77,306



71,981



5,325



7
%Total specialty pharmaceuticals


212,052



208,757



3,295



2
%Alliance revenue (including
    ribavirin royalties)


18,955



21,635



(2,680
)


(12
)%Total revenues


231,007



230,392



615



0.3
%Costs and ExpensesCost of goods sold (excluding
    amortization)


62,116



65,759



(3,643
)


(6
)%Selling expenses


74,684



66,270



8,414



13
%General and administrative expenses


28,963



30,668



(1,705
)


(6
)%Research and development costs


24,617



26,867



(2,250
)


(8
)%Restructuring charges


6,337



53,083



(46,746
)


(88
)%Amortization expense


20,316



17,514



2,802



16
%Operating income (loss)

$
13,974


$
(29,769
)

$
43,743Gross profit on product sales
    (excluding amortization)

$
149,936


$
142,998


$
6,938



5
%Gross profit margin on product
    sales


71
%


68
%   27




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##### Table of Contents



Six Months EndedJune 30,


Increase/


Percent2007


2006


(Decrease)


ChangeRevenuesSpecialty pharmaceuticalsNorth America

$
149,532


$
148,160


$
1,372



1
%International


92,241



109,661



(17,420
)


(16
)%EMEA


147,171



132,336



14,835



11
%Total specialty pharmaceuticals


388,944



390,157



(1,213
)



%Alliance revenue (including
    ribavirin royalties)


55,425



39,726



15,699



40
%Total revenues


444,369



429,883



14,486



3
%Costs and ExpensesCost of goods sold (excluding
    amortization)


114,214



124,360



(10,146
)


(8
)%Selling expenses


139,118



130,545



8,573



7
%General and administrative expenses


55,150



59,114



(3,964
)


(7
)%Research and development costs


47,727



56,421



(8,694
)


(15
)%Gain on litigation settlement






(34,000
)


34,000



NMRestructuring charges


13,575



79,549



(65,974
)


(83
)%Amortization expense


39,447



35,037



4,410



13
%Operating income (loss)

$
35,138


$
(21,143
)

$
56,281Gross profit on product sales
    (excluding amortization)

$
274,730


$
265,797


$
8,933



3
%Gross profit margin on product
    sales


71
%


68
%        28




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##### Table of Contents



Alliance Revenue (including Ribavirin
    royalties):
          Gross Profit Margin (excluding
    amortization): paid-up
   29




---



##### Table of Contents



Selling Expenses:
  General and Administrative Expenses:
  Research and Development:
  Gain on Litigation Settlement:
  Restructuring
    Charges:
  24-month
   30




---



##### Table of Contents



Restructuring
    Charge Details (in thousands)
  Three Months


Six Months


YearEnded


Ended


EndedJune 30,


June 30,


December 31,2006


2006


2006Employee Severances

$
5,369


$
12,013


$
16,997Contract cancellation and other
    cash costs


992



992



1,662Subtotal: Cash Charges


6,361



13,005



18,659Abandoned software and other
    capital assets


3,031



22,853



22,178Impairment of manufacturing and
    research facilities


43,690



43,690



97,344Subtotal: Non-cash charges


46,721



66,543



119,522Total:

$
53,082


$
79,548


$
138,181   Three Months


Six MonthsEnded


Ended


CumulativeJune 30,


June 30,


Total2007


2007


IncurredEmployee Severances (approximately
    490 employees)

$
1,350


$
5,130


$
22,127Contract cancellation and other
    cash costs


1,034



3,115



4,777Subtotal: Cash Charges


2,384



8,245



26,904Abandoned software and other
    capital assets










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


2,891



2,891



2,891Impairment of manufacturing and
    research facilities


1,062



2,439



99,783Subtotal: Non-cash charges


3,953



5,330



124,852Total:

$
6,337


$
13,575


$
151,756   Reconciliation
    of Cash Restructuring Payments with Restructuring
    Accrual
   31




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##### Table of Contents



Three Months


Three MonthsEnded


EndedMarch 31,


June 30,2007


2007Opening accrual

$
5,216


$
5,931Charges to earnings


5,861



2,384Transition and capital expenditure
    payment obligations


163



6,650Cash paid


(5,309
)


(4,988
)Closing accrual

$
5,931


$
9,977   Amortization:
  Other Income (expense), Net, Including Translation and
    Exchange:
  Interest Expense, net:
  Income Taxes:
  Loss from Discontinued Operations, Net of
    Taxes:
  Liquidity
    and Capital Resources
     32




---



##### Table of Contents



24-month
 33




---



##### Table of Contents



Form 10-K
  Off-Balance
    Sheet Arrangements
  Form 10-K.
  Products
    in Development
  Late
    Stage Development of New Chemical Entities
  Retigabine:
       34




---



##### Table of Contents



Taribavirin:
    38-40 percent
      Pradefovir: once-a-day
  24-month follow-up
  Other
    Development Activities
  Infergen:
 35




---



##### Table of Contents



follow-up.
  follow-up
      Cesamet: start-up
  Foreign
    Operations
    Critical
    Accounting Estimates
   36




---



##### Table of Contents



Revenue
    Recognition
                 37




---



##### Table of Contents



Sales
    Incentives
    Income
    Taxes
      Impairment
    of Property, Plant and Equipment
    Valuation
    of Intangible Assets
   38




---



##### Table of Contents



Stock-based
    Compensation Expense
      2007

2006Average life of option (years)

5.73

4.10 - 5.80Stock price volatility

35% - 36%

37% - 39%Expected dividend per share

$0.00

$0.00 - $0.31Risk-free interest rate

4.52% - 4.76%

4.54% - 4.80%Weighted-average fair value of
    options

$7.28

$7.83         Contingencies
  Accounting for Contingencies
 39




---



##### Table of Contents



Other
    Financial Information
    Forward-Looking
    Statements
  Form 10-Q Form 10-Q,
    
    The future growth of our business depends on the development and
    approval of new products by us and our licensees, including
    taribavirin and retigabine. The process of developing new drugs
    has an inherent risk of failure. For example, product candidates
    may turn out to be ineffective or unsafe in clinical testing;
    their patent protection may become compromised; other therapies
    may prove safer or more effective; or the prevalence of the
    disease for which they are being developed may decrease. Our
    inability to develop our products due to these or other factors
    could have a material adverse effect on future revenues.
    We can protect our products from generic substitution by third
    parties only to the extent that our technologies are covered by
    valid and enforceable patents, are effectively maintained as
    trade secrets or are protected by data exclusivity. However, our
    pending or future patent applications may not issue as patents.
    Any patent issued may be challenged, invalidated, held
    unenforceable or circumvented. Furthermore, our patents may not
    be sufficiently broad to prevent third parties competing
    products. The expiration of patent protection for ribavirin has
    resulted in significant competition from generic substitutes and
    declining royalty revenues and may negatively impact future
    financial results.
    Trade secret protection is less effective than patent protection
    because competitors may discover our technology or develop
    parallel technology. 40




---



##### Table of Contents




    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 relationships with wholesale distributors, including those
    in Mexico, can affect sales results and, if there is a change in
    any of these relationships, our results may not meet our
    expectations.
    The successful commercialization of product candidates and the
    conduct of clinical trials are subject to many risks, including
    the ability to complete enrollment of the requisite number of
    patients in clinical trials and to conclude clinical trials
    within expected timeframes, adverse events that would require
    clinical trials to be prematurely terminated, clinical results
    that indicate continuing clinical and commercial pursuit of
    clinical candidates is not advisable, and the fact that Phase 2
    clinical trial results are not always indicative of those seen
    in Phase 3 clinical trials.
    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.
    A significant part of our revenue is derived from products
    manufactured by third parties. We rely on their quality level,
    compliance with the FDA regulations or similar regulatory
    requirements enforced by regulatory agencies in other countries
    and continuity of supply. Any failure by them in these areas
    could disrupt our product supply and negatively impact our
    revenues.
    Our flexibility in maximizing commercialization opportunities
    for our compounds may be limited by our obligations to
    Schering-Plough. In November 2000, we entered into an agreement
    that provides Schering-Plough with an option to acquire the
    rights to up to three of our products intended to treat
    hepatitis C that Schering-Plough designates prior to our
    entering Phase 2 clinical trials and a right for first/last
    refusal to license various compounds we may develop and elect to
    license to others. Taribavirin was not subject to the option of
    Schering-Plough, but it would be subject to their right of
    first/last refusal if we elected to license it to a third party.
    The interest of potential collaborators in obtaining rights to
    our compounds or the terms of any agreement we ultimately enter
    into for these rights may be hindered by our agreement with
    Schering-Plough.
    To purchase our products, many patients rely on reimbursement by
    third party payors such as insurance companies, HMOs and
    government agencies. These third party payors are increasingly
    attempting to contain costs by limiting both coverage and the
    level of reimbursement of new drug products. The reimbursement 41




---



##### Table of Contents



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 9 to notes to consolidated condensed
    financial statements, any of which could result in substantial
    cost and divert managements attention and resources.
    Our stockholder rights plan, provisions of our certificate of
    incorporation and provisions of the Delaware General Corporation
    Law could provide our Board of Directors with the ability to
    deter hostile takeovers or delay, deter or prevent a change in
    control of our company, including transactions in which
    stockholders might otherwise receive a premium for their shares
    over then current market prices.
    We are authorized to issue, without stockholder approval,
    approximately 10,000,000 shares of preferred stock,
    200,000,000 shares of common stock and securities
    convertible into either shares of common stock or preferred
    stock. If we issue additional equity securities, the price of
    our securities may be materially and adversely affected. The
    Board of Directors can also use issuances of preferred or common
    stock to deter a hostile takeover or change in control of our
    company.
    We are subject to a consent order with the Securities and
    Exchange Commission, which permanently enjoins us from violating
    securities laws and regulations. The consent order also
    precludes protection for forward-looking statements under the
    safe harbor provisions of the Private Securities Litigation
    Reform Act of 1995 with respect to forward-looking statements we
    made prior to November 28, 2005. The existence of the
    permanent injunction under the consent order, and the lack of
    protection under the safe harbor with respect to forward-looking
    statements made prior to November 28, 2005 may limit
    our ability to defend against future allegations.  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      Notional/


Assets (Liabilities)Contract


Carrying


FairDescription

Amount


Value


ValueForward contracts

$
68,939


$
208


$
208Interest rate swaps


150,000



(6,006
)


(6,006
)Outstanding fixed-rate debt


780,000



(780,000
)


(741,438
)  42




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##### Table of Contents



Item 4.
    Controls
    and Procedures    Rule 13a-15(c)
   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K Form 10-Q, Form 10-K. Form 10-K Form 10-Q.
  If we,
    our partners or licensees cannot successfully develop or obtain
    future products and commercialize those products, our growth
    would be delayed.
   43




---



##### Table of Contents



The
    current SEC investigation could adversely affect our business
    and the trading price of our securities.
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   44




---



##### Table of Contents



Votes Cast


Votes Cast


Votes


VotesMatter

For


Against


Withheld


AbstainElection of Norma Ann Provencio


83,821,014







4,103,730Election of Timothy C. Tyson


76,418,928







11,505,815Election of Elaine Ullian


74,359,310







13,565,433Ratification of Appointment of
    Pricewaterhouse Coopers LLP


77,800,833



10,081,356







42,553   Item 6.
    Exhibits  (a)
    Exhibits  Exhibit3
.1

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

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

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

Form of Restricted Stock Unit
    Award Grant Notice for Directors10
.2

Form of Restricted Stock Unit
    Award Agreement for Directors15
.1

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

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

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

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

Certification of Chief Executive
    Officer and Chief Financial Officer of Periodic Financial
    Reports pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, 18 U.S.C. § 1350.  45




---



##### Table of Contents



SIGNATURES  Form 10-Q
  Valeant Pharmaceuticals
    International
  Timothy
    C. Tyson
   President and Chief Executive Officer
    Peter
    J. Blott
   Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
   46




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit3
.1

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

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

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

Form of Restricted Stock Unit
    Award Grant Notice for Directors10
.2

Form of Restricted Stock Unit
    Award Agreement for Directors15
.1

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

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

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

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

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