Valeant second quarter total revenue increases to record $609.4 million

Aug 4 2011

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announces second quarter financial results for 2011.

"The second quarter once again demonstrated the strength of our diversified business model," stated J. Michael Pearson, chairman and chief executive officer. "While the organic growth in our U.S. operations faced a number of headwinds this quarter, such as a tough comparison to the second quarter of 2010 when Legacy Biovail product sales were at unusually high levels, coupled with lower than expected results delivered by partnered Legacy Biovail generic products, we still delivered solid pro forma organic growth. We remain confident that our full year pro forma organic growth should be approximately 8 percent due in part to the strong performance from our businesses in Europe, Latin America, Canada and Australia. In addition, we are pleased to report that our cash flow from operations generation was particularly robust this quarter, demonstrating the solid execution of our business strategy."

Total revenue was $609.4 million in the second quarter of 2011 as compared to $238.8 million in the second quarter of 2010. Included in total revenue for 2011 was $40.0 million of alliance and royalty revenue related to the milestone payment for European launch of retigabine (Trobalt) from GlaxoSmithKline (GSK). Product sales were $530.0 million in the second quarter of 2011, as compared to $231.2 million in the year-ago quarter. These increases are primarily due to the acquisition of Valeant Pharmaceuticals International (Legacy Valeant) by Biovail Corporation (Legacy Biovail) which was completed in September 2010. In connection with the acquisition, Biovail was renamed Valeant Pharmaceuticals International, Inc. GAAP results for the second quarter of 2010 only reflect Legacy Biovail revenues and do not include any revenues from Legacy Valeant.

Total pro forma revenue growth for the combined company (Legacy Biovail and Legacy Valeant) was approximately 27% for the second quarter of 2011. Pro forma organic revenue growth for the combined company, excluding the impact of foreign exchange and acquisitions, was approximately 4% for the second quarter of 2011. Also, excluding the genericization impact from Diastat and Efudex, pro forma organic revenue growth for the combined company was approximately 7%.

The Company's cost of goods sold, excluding amortization of intangibles, was $169.9 million in the second quarter of 2011 and represented 32% of product sales. This number in the second quarter of 2011 included $18.2 million in acquisition step up and amortization primarily related to the acquisition of PharmaSwiss. Excluding the adjustments, cost of goods for the second quarter of 2011 was 29% of product sales.

Selling, General and Administrative expenses were $149.7 million in the second quarter of 2011, which includes a $16.1 million step-up in stock based compensation expenses related to the acquisition of Legacy Valeant. Excluding the step-up in stock based compensation, SG&A was approximately 25% of product sales and service and other revenue. Research and Development expenses were $17.8 million in the second quarter of 2011, or approximately 3% of revenue.

In connection with an offer to acquire Cephalon, Inc., Valeant acquired approximately 1.0 million shares of common stock of Cephalon. Subsequently, Cephalon agreed to be acquired by Teva Pharmaceuticals Industries Inc. and consequently, Valeant disposed of its entire investment, which resulted in a realized gain of approximately $0.06 diluted earnings per share.

The Company reported net income of $56.4 million for the second quarter of 2011, or $0.17 per diluted share. On a Cash EPS basis, income was $240.2 million, or $0.73 per diluted share.

GAAP cash flow from operating activities was $227 million in the second quarter of 2011, and adjusted cash flow from operations was $260 million in the second quarter of 2011.

Since March 31st, 2011, under Valeant's securities repurchase program, the Company repurchased an additional $68 million principal amount of the 5.375% senior convertible notes due 2014, for an aggregate purchase price of $244 million, bringing the aggregate repurchases to $247 million of the $350 million face value of the 5.375% convertible notes.

The Company is raising its previous Cash EPS guidance to $2.70 to $3.00 in 2011, as compared to prior guidance of $2.65 to $2.90.