BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2011

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

3.     BUSINESS COMBINATIONS

• Since the Merger, the Company has focused its business on core geographies and therapeutic classes through selective acquisitions, dispositions and strategic partnerships with other pharmaceutical companies.

  Biovail Merger with Valeant

  Description of the Transaction

  On September 28, 2010, a wholly-owned subsidiary of Biovail acquired all of the outstanding equity of Valeant in a share transaction, in which each share of Valeant common stock was cancelled and converted into the right to receive 1.7809 Biovail common shares. The share consideration was valued at $26.35 per share based on the market price of Biovail's common shares as of the Merger Date. In addition, immediately preceding the effective time of the Merger, Valeant paid its stockholders a special dividend of $16.77 per share (the "pre-Merger special dividend") of Valeant common stock. As a result of the Merger, Valeant became a wholly-owned subsidiary of Biovail.

  On December 22, 2010, the Company paid a post-Merger special dividend of $1.00 per common share (the "post-Merger special dividend"). The post-Merger special dividend comprised aggregate cash paid of $297.6 million and 72,283 shares issued to shareholders that elected to reinvest in additional common shares of the Company through a special dividend reinvestment plan, which plan was terminated following payment of the post-Merger special dividend.

  Valeant is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Valeant's specialty pharmaceutical and over-the-counter ("OTC") products are marketed under brand names and are sold in the U.S., Canada, Australia and New Zealand, where Valeant focuses most of its efforts on the dermatology and neurology therapeutic classes. Valeant also has branded generic and OTC operations in Europe and Latin America, which focus on pharmaceutical products that are bioequivalent to original products and are marketed under company brand names.

  Basis of Presentation

  The transaction has been accounted for as a business combination under the acquisition method of accounting, which requires, among other things, the share consideration transferred be measured at the acquisition date based on the then-current market price and that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Acquisition- related transaction costs and certain acquisition-related restructuring charges are not included as a component of the acquisition accounting, but are accounted for as expenses in the periods in which the costs are incurred.

  Fair Value of Consideration Transferred

  The following table indicates the consideration transferred to effect the acquisition of Valeant:

(Number of shares, stock options and restricted share units in thousands)	Conversion Calculation		Fair Value		Form of Consideration
Number of common shares of Biovail issued in exchange for Valeant common stock outstanding as of the Merger Date		139,137
Multiplied by Biovail's stock price as of the Merger Date(a)	$	26.35	$	3,666,245	Common shares
Number of common shares of Biovail expected to be issued pursuant to vested Valeant RSUs as a result of the Merger		1,694
Multiplied by Biovail's stock price as of the Merger date(a)	$	26.35		44,643	Common shares
Fair value of vested and partially vested Valeant stock options converted into Biovail stock options				110,687	Stock options(b)
Fair value of vested and partially vested Valeant RSUs converted into Biovail RSUs				58,726	RSUs(c)
Cash consideration paid and payable				51,739	Cash(d)
Total fair value of consideration transferred			$	3,932,040

• (a)

  As the Merger was effective at 12:01 a.m. on September 28, 2010, the conversion calculation reflects the closing price of Biovail's common shares on the New York Stock Exchange ("NYSE") at September 27, 2010.
  
  

  (b)

  The fair value of the vested and partially vested portions of Valeant stock options that were converted into stock options of Biovail was recognized as a component of the consideration transferred, based on a weighted-average fair value of $17.63 per stock option, which was calculated using the Black-Scholes option pricing model. This calculation considered the closing price of Biovail's common shares of $26.35 per share as of the Merger Date and the following assumptions:

Expected volatility	32.9%
Expected life	3.4 years
Risk-free interest rate	1.1%
Expected dividend yield	1.5%

• • The expected life of the options was determined by taking into account the contractual life of the options and estimated exercise pattern of the option holders. The expected volatility and risk-free interest rate were determined based on current market information, and the dividend yield was derived based on the expectation of the post-Merger special dividend of $1.00 per common share of the Company and no dividends thereafter.

    The fair values of the exchanged Biovail stock options exceeded the fair values of the vested and partially vested Valeant stock options as of the Merger Date in an amount of $17.2 million, which was recognized immediately as post-Merger compensation expense.

  (c)

  The fair value of the vested portion of Valeant time-based and performance-based RSUs converted into RSUs of Biovail was recognized as a component of the purchase price. The fair value of the vested portion of the Valeant time-based RSUs was determined based on the closing price of Biovail's common shares of $26.35 per share as of the Merger Date. The fair value of Valeant performance-based RSUs was determined using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that the performance condition will be achieved.

   

  • The fair value of the exchanged Biovail time-based RSUs exceeded the fair value of the vested and partially vested Valeant time-based RSUs as of the Merger Date in an amount of $3.8 million, which was recognized immediately as post-Merger compensation expense.

  (d)

  Cash consideration includes $39.7 million of income tax withholdings paid by the Company on behalf of employees of Valeant, in connection with the net share settlement of certain vested Valeant RSUs as of the Merger Date. In addition, under the terms of the Company's employment agreement with J. Michael Pearson, Chief Executive Officer, cash equal to the pre-Merger special dividend payment was paid to Mr. Pearson in respect of any of his 2008 performance awards that vested in February 2011 at the time of such vesting. As of the Merger Date, the aggregate amount of this cash payment in respect of the pre-Merger special dividend was estimated to be $13.7 million, based on the assumption that Mr. Pearson's 2008 performance awards will vest at the maximum performance target. Of that amount, the portion attributable to Mr. Pearson's pre-Merger service ($12.1 million) was recognized in the fair value of consideration transferred, while the portion attributable to Mr. Pearson's post-Merger service ($1.6 million) was recognized as share-based compensation expense over the remaining vesting period from the Merger Date to February 2011.

  Assets Acquired and Liabilities Assumed

  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Merger Date, as well as measurement period adjustments to the amounts originally recorded in 2010. The measurement period adjustments did not have a material impact on the Company's previously reported results of operations or financial position in any period subsequent to the Merger Date and, therefore, the Company has not retrospectively adjusted its consolidated financial statements.

	Amounts Recognized as of Merger Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized (as adjusted)
Cash and cash equivalents	$	348,637		$	—		$	348,637
Accounts receivable(c)		194,930			—			194,930
Inventories(d)		208,874			—			208,874
Other current assets(e)		30,869			—			30,869
Property, plant and equipment(f)		184,757			—			184,757
Identifiable intangible assets, excluding acquired IPR&D(g)		3,844,310			(224,939	)		3,619,371
Acquired IPR&D(h)		1,404,956			(4,195	)		1,400,761
Other non-current assets		6,108			—			6,108
Current liabilities(i)		(385,574	)		874			(384,700	)
Long-term debt, including current portion(j)		(2,913,614	)		—			(2,913,614	)
Deferred income taxes, net(k)		(1,467,791	)		157,816			(1,309,975	)
Other non-current liabilities(l)		(149,307	)		(46,022	)		(195,329	)
Total indentifiable net assets		1,307,155			(116,466	)		1,190,689
Equity component of convertible debt(j)		(225,971	)		—			(225,971	)
Call option agreements(m)		(28,000	)		—			(28,000	)
Goodwill(n)		2,878,856			116,466			2,995,322
Total fair value of consideration transferred	$	3,932,040		$	—		$	3,932,040

• (a)

  As previously reported in the 2010 Form 10-K.
  
  

  (b)

  The measurement period adjustments primarily reflect: (i) changes in the estimated fair values of certain identifiable intangible assets to better reflect the competitive environment, market potential and economic lives of certain products; and (ii) the tax impact of pre-tax measurement period adjustments and resolution of certain tax aspects of the transaction. The measurement period adjustments were made to reflect market participant assumptions about facts and circumstances existing as of the Merger Date, and did not result from intervening events subsequent to the Merger Date.
  
  

  (c)

  The fair value of accounts receivable acquired was $194.9 million, which comprised trade receivables ($151.9 million) and royalty and other receivables ($43.1 million). The gross contractual amount of trade receivables was $159.0 million, of which the Company expects that $7.1 million will be uncollectible.
  
  

  (d)

  Includes $78.5 million to record Valeant's inventory at its estimated fair value.
  
  

  (e)

  Includes prepaid expenses and assets held for sale.
  
  

  (f)

  The following table summarizes the amounts and useful lives assigned to property, plant and equipment:

	Useful Lives (Years)	Amounts Recognized as of Merger Date
Land	NA	$	23,248
Buildings	Up to 40		75,008
Machinery and equipment	3-20		64,516
Other equipment	3-10		11,003
Leasehold improvements	Term of lease		3,728
Construction in progress	NA		7,254
Total property, plant and equipment acquired		$	184,757

• (g)

  The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Merger Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized (as adjusted)
Product brands		16	$	3,114,689	$	(190,779	)	$	2,923,910
Corporate brands		20		168,602		98			168,700
Product rights		9		360,970		(52,949	)		308,021
Out-licensed technology and other		7		200,049		18,691			218,740
Total identifiable intangible assets acquired		15	$	3,844,310	$	(224,939	)	$	3,619,371

• (h)

  Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The significant components of the acquired IPR&D assets relate to the development of ezogabine/retigabine in collaboration with Glaxo Group Limited, a subsidiary of GlaxoSmithKline plc (the entities within The Glaxo Group of Companies are referred throughout as "GSK"), as an adjunctive treatment for refractory partial-onset seizures in adult patients with epilepsy (as described in note 5), and a number of dermatology products in development for the treatment of severe acne and fungal infections, among other indications. The following table summarizes the amounts assigned to the acquired IPR&D assets:

	Amounts Recognized as of Merger Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized (as adjusted)
Ezogabine/retigabine(1)	$	891,461	$	—		$	891,461
Dermatology products		431,323		(3,100	)		428,223
Other		82,172		(1,095	)		81,077
Total IPR&D assets acquired	$	1,404,956	$	(4,195	)	$	1,400,761

• • (1)

    Refer to note 5 — "COLLABORATION AGREEMENT"
    

• • A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. A risk-adjusted discount rate of 9% was used to present value the projected cash flows.

  (i)

  Includes accounts payable, accrued liabilities and income taxes payable.
  
  

  (j)

  As described in note 14, in connection with the Merger, Valeant secured financing of $125.0 million under a senior secured revolving credit facility, $1.0 billion under a senior secured term loan A facility (the "Term Loan A Facility"), and $1.625 billion under a senior secured term loan B facility (the "Term Loan B Facility"), and used a portion of the proceeds to undertake the following transactions prior to the Merger Date:

  •

  fund the payment of the pre-Merger special dividend;

  •

  fund the legal defeasance of Valeant's existing 8.375% and 7.625% senior unsecured notes, by depositing with the trustees amounts sufficient to pay 100% of the outstanding aggregate principal amount of the notes, plus applicable premium and accrued and unpaid interest, on October 27, 2010; and

  •

  fund the repayment in full of indebtedness under Valeant's existing senior secured term loan.

  • Concurrent with the closing of the Merger, Valeant issued $500.0 million aggregate principal amount of 6.75% senior notes due 2017 (the "2017 Notes") and $700.0 million aggregate principal amount of 7.00% senior notes due 2020 (the "2020 Notes"). A portion of the proceeds of the 2017 Notes and 2020 Notes offering was used to pay down $1.0 billion of the Term Loan B Facility.

    Valeant incurred $118.4 million of debt issuance costs in connection with the above financings that were ascribed a fair value of nil in the acquisition accounting.

    In addition, as of the Merger Date, Valeant had $225.0 million outstanding principal amount of 4.0% convertible subordinated notes due 2013 (the "4.0% Convertible Notes"). The Company is required to separately account for the liability component and equity component of the 4.0% Convertible Notes, as these notes have cash settlement features. The fair value of the 4.0% Convertible Notes was determined to be $446.5 million. A fair value of $220.5 million has been allocated to the liability component in a manner reflecting the Company's interest rate for a similar debt instrument without a conversion feature. The residual of the fair value of $226.0 million represents the carrying amount of the equity component, which was recorded as additional paid-in capital in the Company's consolidated shareholders' equity.

    On April 20, 2011, the Company distributed a notice of redemption to holders of Valeant's 4.0% Convertible Notes, pursuant to which all of the outstanding 4.0% Convertible Notes would be redeemed on May 20, 2011 (the "Redemption Date"), at a redemption price of 100% of the outstanding aggregate principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date. The 4.0% Convertible Notes called for redemption could be converted at the election of the holders at any time before the close of business on May 19, 2011. Consequently, all of the outstanding 4.0% Convertible Notes were converted into 17,782,764 common shares of the Company, at a conversion rate of 79.0667 common shares per $1,000 principal amount of notes, which represented a conversion price of approximately $12.65 per share. For further details regarding the settlement of the 4% Convertible Notes, see note 14 titled "LONG-TERM DEBT".

    The following table summarizes the fair value of long-term debt assumed as of the Merger Date:

	Amounts Recognized as of Merger Date
Term Loan A Facility(1)	$	1,000,000
Term Loan B Facility(1)		500,000
2017 Notes		497,500
2020 Notes		695,625
4.0% Convertible Notes(2)		220,489
Total long-term debt assumed	$	2,913,614

• • (1)

    Effective November 29, 2010, the Term Loan B Facility was repaid in full. Effective March 8, 2011, Valeant terminated the Credit and Guaranty Agreement and repaid the amounts outstanding under the Term Loan A Facility.
    
    

    (2)

    As described above, 4% Convertible Notes were redeemed in the second quarter of 2011.
    
    

  (k)

  Comprises current deferred tax assets ($68.5 million), non-current deferred tax assets ($4.3 million), current deferred tax liabilities ($6.5 million) and non-current deferred tax liabilities ($1,376.3 million).
  
  

  (l)

  Includes the fair value of contingent consideration related to Valeant's acquisition of Princeton Pharma Holdings LLC, and its wholly-owned operating subsidiary, Aton Pharma, Inc. ("Aton"), on May 26, 2010. The aggregate fair value of the contingent consideration was determined to be $21.6 million as of the Merger Date. The contingent consideration consists of future milestones predominantly based upon the achievement of approval and commercial targets for certain pipeline products (which are included in the fair value ascribed to the IPR&D assets acquired, as described above under (h)). The range of the undiscounted amounts the Company could be obligated to pay as contingent consideration ranges from nil to $390.0 million. During 2011, the Company suspended the development of the A002 program. For the year ended December 31, 2011, the Company recognized an impairment charge of $16.3 million to write down the IPR&D asset related to the A002 program, which was recognized as Acquired IPR&D in the Company's consolidated statements of income (loss). For further details, see note 12 titled "INTANGIBLE ASSETS AND GOODWILL". The impairment charges were partially offset by a gain of $9.4 million due to changes in the fair value of acquisition-related contingent consideration. The gain was recognized as Acquisition-related contingent consideration in the Company's consolidated statements of income (loss).
  
  

  (m)

  The Company assumed Valeant's existing call option agreements in respect of the shares underlying the conversion of $200.0 million principal amount of the 4.0% Convertible Notes. These agreements consisted of purchased call options on 15,813,338 common shares of the Company, which matured on May 20, 2011, and written call options on the identical number of shares, which matured on August 18, 2011. For further details regarding the settlement of these call options, see note 14 titled "LONG-TERM DEBT".

  • In addition, the Company assumed written call option agreements in respect of 3,863,670 common shares of the Company underlying Valeant's 3.0% convertible subordinated notes that matured in August 2010. The written call options on shares underlying the 3.0% convertible subordinated notes expired on November 15, 2010, and were settled over the following 30 business days. On November 19, 2010, the call option agreements were amended to require cash settlement, resulting in the reclassification of the $32.8 million fair value of the written call options as a liability as of that date. The Company recognized a loss of $10.1 million on the written call options settled for cash, which has been included in loss on extinguishment of debt (as described in note 19).

  (n)

  Goodwill is calculated as the difference between the Merger Date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

  •

  cost savings, operating synergies and other benefits expected to result from combining the operations of Valeant with those of Biovail;

  •

  the value of the going-concern element of Valeant's existing business (that is, the higher rate of return on the assembled net assets versus if Biovail had acquired all of the net assets separately); and

  •

  intangible assets that do not qualify for separate recognition (for instance, Valeant's assembled workforce), as well as future, as yet unidentified research and development projects.

   

  • The amount of goodwill by business segment is indicated in note 12.

  Acquisition-Related Costs

  For the year ended December 31, 2010, the Company incurred $38.3 million of transaction costs directly related to the Merger, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  iNova

  Description of the Transaction

  On December 21, 2011, the Company acquired iNova from Archer Capital, Ironbridge Capital and other minority management shareholders. The Company made upfront payments of $656.7 million (AUD$657.9 million) and the Company will pay a series of potential milestones of up to $59.9 million (AUD$60.0 million) based on the success of pipeline activities, product registrations and overall revenue. The fair value of the contingent consideration was determined to be $44.5 million as of the acquisition date. As of December 31, 2011, the assumptions used for determining the fair value of the acquisition-related contingent consideration have not changed significantly from those used at the acquisition date.

  In connection with the transaction, in November and December 2011, the Company entered into foreign currency forward-exchange contracts to buy AUD$625.0 million, which were settled on December 20, 2011. The Company recorded a $16.4 million foreign exchange gain on the settlement of these contracts, which was recognized in Foreign exchange and other in the consolidated statements of income (loss) for the year ended December 31, 2011.

  iNova sells and distributes a range of prescription and OTC products in Australia, New Zealand, Southeast Asia and South Africa. iNova owns, develops and markets a diversified portfolio of prescription and OTC pharmaceutical products in the Asia Pacific region and South Africa, including leading therapeutic weight management brands such as Duromine®/Metermine®, as well as leading OTC brands in the cold and cough area, such as Difflam®, Duro-Tuss® and Rikodeine®.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to the timing of this acquisition, these amounts are provisional and subject to change. The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognized at the acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

	Amounts Recognized as of Acquisition Date
Cash and cash equivalents	$	8,792
Accounts receivable(a)		30,525
Inventories		43,387
Property, plant and equipment		15,257
Identifiable intangible assets(b)		423,950
Current liabilities		(32,500	)
Total indentifiable net assets		489,411
Goodwill(c)		211,770
Total fair value of consideration transferred	$	701,181

• (a)

  The fair value of trade accounts receivable acquired was $30.5 million, with the gross contractual amount being $31.5 million, of which the Company expects that $1.0 million will be uncollectible.
  
  

  (b)

  The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Acquisition Date
Product brands		8	$	418,252
Corporate brands		4		5,698
Total identifiable intangible assets acquired		8	$	423,950

• (c)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

  •

  cost savings, operating synergies and other benefits expected to result from combining the operations of iNova with those of the Company;

  •

  the value of the continuing operations of iNova's existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

  •

  intangible assets that do not qualify for separate recognition (for instance, iNova's assembled workforce).

   

  • The provisional amount of goodwill has been allocated to the Company's Canada and Australia business segment as indicated in note 12.

  Acquisition-Related Costs

  The Company has incurred to date $3.7 million of transaction costs directly related to the iNova acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of iNova

  The revenues of iNova for the period from the acquisition date to December 31, 2011 were not material and net loss was $5.0 million. The net loss includes the effects of the acquisition accounting adjustments of $2.7 million and the acquisition-related costs of $3.7 million.

  Dermik

  Description of the Transaction

  On December 16, 2011, the Company acquired Dermik, a dermatological unit of Sanofi in the U.S. and Canada, as well as the worldwide rights to Sculptra® and Sculptra® Aesthetic, for a total cash purchase price of approximately $420.5 million. The acquisition includes Dermik's inventories and manufacturing facility located in Laval, Quebec. In connection with the acquisition of Dermik, the Company was required by the Federal Trade Commission ("FTC") to divest 1% clindamycin and 5% benzoyl peroxide gel, a generic version of BenzaClin®, and 5% fluorouracil cream, an authorized generic of Efudex®. For further details, see note 4 titled "ACQUISITIONS AND DISPOSITIONS".

  Dermik is a leading global medical dermatology business focused on the manufacturing, marketing and sale of therapeutic and aesthetic dermatology products.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to the timing of this acquisition, these amounts are provisional and subject to change. The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognized at the acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

	Amounts Recognized as of Acquisition Date
Inventories	$	32,360
Property, plant and equipment		39,581
Identifiable intangible assets(a)		341,680
Deferred tax liability		(1,262	)
Total indentifiable net assets		412,359
Goodwill(b)		8,141
Total fair value of consideration transferred	$	420,500

• (a)

  The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Acquisition Date
Product brands		9	$	292,472
Product rights		5		33,857
Manufacturing agreement		5		15,351
Total identifiable intangible assets acquired		9	$	341,680

• (b)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. The Company expects that $6.4 million of the goodwill will be deductible for tax purposes in Canada. The goodwill recorded represents primarily the value of Dermik's assembled workforce. The provisional amount of goodwill has been allocated to the Company's U.S. Dermatology business segment as indicated in note 12.

  Acquisition-Related Costs

  The Company has incurred to date $9.5 million of transaction costs directly related to the Dermik acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of Dermik

  The revenues of Dermik for the period from the acquisition date to December 31, 2011 were $7.6 million and net loss was $10.6 million. The net loss includes the effects of the acquisition accounting adjustments of $5.2 million, the acquisition-related costs of $9.5 million and acquisition-related integration and restructuring costs of $2.8 million.

  Ortho Dermatologics

  Description of the Transaction

  On December 12, 2011, the Company acquired assets of the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc. ("Janssen"), for a total cash purchase price of approximately $346.1 million. The assets acquired included prescription brands Retin-A Micro®, Ertaczo®, Renova® and Biafine®.

  Ortho Dermatologics is a leader in the field of dermatology and, over the years, has developed several products to treat skin disorders and dermatologic conditions.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to the timing of this acquisition, these amounts are provisional and subject to change. The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognized at the acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

	Amounts Recognized as of Acquisition Date
Inventories	$	6,169
Property, plant and equipment		206
Identifiable intangible assets, excluding acquired IPR&D(a)		333,599
Acquired IPR&D(b)		4,318
Deferred tax liability		(1,690	)
Total indentifiable net assets		342,602
Goodwill(c)		3,507
Total fair value of consideration transferred	$	346,109

• (a)

  The identifiable intangible assets acquired relate to product brands intangible assets with an estimated weighted-average useful life of approximately nine years.
  
  

  (b)

  The acquired IPR&D asset relates to the development of the MC5 program.
  
  

  (c)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents primarily the cost savings, operating synergies and other benefits expected to result from combining the operations of Ortho Dermatologics with those of the Company. The provisional amount of goodwill has been allocated to the Company's U.S. Dermatology business segment as indicated in note 12.

• Acquisition-Related Costs

  The Company has incurred to date $5.3 million of transaction costs directly related to the Ortho Dermatologics acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of Ortho Dermatologics

  The revenues of Ortho Dermatologics for the period from the acquisition date to December 31, 2011 were $9.6 million and net loss was $2.1 million. The net loss includes the effects of the acquisition accounting adjustments of $2.7 million, the acquisition-related costs of $5.3 million and acquisition-related integration and restructuring costs of $2.6 million.

  Afexa

  Description of the Transaction

  On October 17, 2011, the Company acquired 73.8% (80,929,921 common shares) of the outstanding common shares of Afexa Life Sciences Inc. ("Afexa") for cash consideration of $67.7 million. The acquisition date fair value of the 26.2% noncontrolling interest in Afexa of $23.8 million was estimated using quoted market prices on such date.

  At a special meeting of Afexa shareholders held on December 12, 2011, a subsequent acquisition transaction was approved resulting in the privatization of Afexa and the remaining shareholders receiving C$0.85 per share. Consequently, as of December 31, 2011, the Company owned 100% of Afexa.

  Afexa, currently markets several consumer brands, such as Cold-FX®, an OTC cold and flu treatment, and Coldsore-FX®, a topical OTC cold sore treatment.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The following recognized amounts are provisional and subject to change:

  •

  amounts and useful lives for identifiable intangible assets and property, plant and equipment, pending the finalization of valuation efforts;

  •

  amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and

  •

  amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.

• The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognized at the acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

	Amounts Recognized as of Acquisition Date
Cash	$	1,558
Accounts receivable(a)		9,436
Inventories		22,489
Other current assets		5,406
Property and equipment		8,766
Identifiable intangible assets(b)		80,580
Current liabilities		(18,104	)
Deferred income taxes, net		(20,533	)
Other non-current liabilities		(1,138	)
Total indentifiable net assets		88,460
Goodwill(c)		3,070
Total fair value of consideration transferred	$	91,530

• (a)

  Both the fair value and gross contractual amount of trade accounts receivable acquired were $9.4 million, as the Company expects that the amount to be uncollectible is negligible.
  
  

  (b)

  The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Acquisition Date
Product brands		11	$	65,194
Patented technology		7		15,386
Total identifiable intangible assets acquired		10	$	80,580

• (c)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

  •

  cost savings, operating synergies and other benefits expected to result from combining the operations of Afexa with those of the Company; and

  •

  intangible assets that do not qualify for separate recognition (for instance, Afexa's assembled workforce).

• • The provisional amount of goodwill has been allocated to the Company's Canada and Australia business segment as indicated in note 12.

  Acquisition-Related Costs

  The Company has incurred to date $3.3 million of transaction costs directly related to the Afexa acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of Afexa

  The revenues of Afexa for the period from the acquisition date to December 31, 2011 were $12.6 million and net loss was $3.9 million. The net loss includes the effects of the acquisition accounting adjustments of $3.7 million, the acquisition-related costs of $3.3 million and acquisition-related integration and restructuring costs of $5.8 million. The net loss attributable to noncontrolling interest for the period from the acquisition date to December 31, 2011 was immaterial.

  Sanitas

  Description of the Transaction

  On August 19, 2011 (the "Sanitas Acquisition Date"), the Company acquired 87.2% of the outstanding shares of AB Sanitas ("Sanitas") for cash consideration of $392.3 million. Prior to the Sanitas Acquisition Date, the Company acquired 1,502,432 shares of Sanitas, which represented approximately 4.8% of the outstanding shares. As a result, as of the Sanitas Acquisition Date, the Company held a controlling financial interest in Sanitas of 92%, or 28,625,025 shares. The acquisition date fair value of the 8% noncontrolling interest in Sanitas of $34.8 million, and the acquisition date fair value of the previously-held 4.8% equity interest of $21.1 million, were estimated using quoted market prices on such date.

  As of the Sanitas Acquisition Date, the Company reclassified the unrealized loss of $0.2 million related to the previously-held equity interest from other comprehensive income to earnings, which was included in Gain (loss) on investments, net in the consolidated statements of income (loss).

  On September 2, 2011, the Company announced a mandatory non-competitive tender offer (the "Tender Offer") to purchase the remaining outstanding ordinary shares of Sanitas from all public shareholders at €10.06 per share. The Tender Offer closed on September 15, 2011, on which date the Company purchased an additional 1,968,631 shares (6.4% of the outstanding shares of Sanitas) for approximately $27.4 million. As a result of this purchase, the Company owned 30,593,656 shares or approximately 98.4% of Sanitas as of September 15, 2011.

  On September 22, 2011, the Company received approval from the Securities Commission of the Republic of Lithuania to conduct the mandatory tender offer through squeeze out procedures (the "Squeeze Out") at a price per one ordinary share of Sanitas equal to €10.06, which requested that all minority shareholders sell to the Company the ordinary shares of Sanitas owned by them (512,264 ordinary shares, or 1.6% of Sanitas).

  As the Company maintained a controlling financial interest in Sanitas during the Tender Offer, the additional ownership interest of 6.4% acquired in Sanitas was accounted for as an equity transaction between owners. The noncontrolling interest in Sanitas of approximately 1.6% to be acquired through the Squeeze Out procedures was classified as a liability in the Company's consolidated balance sheet as it was mandatorily redeemable. As of December 31, 2011, the amount due to Sanitas shareholders of $2.4 million was included in Accrued liabilities.

  Sanitas has a broad branded generics product portfolio consisting of 390 products in nine countries throughout Central and Eastern Europe, primarily Poland, Russia and Lithuania. Sanitas has in-house development capabilities in dermatology, hospital injectables and ophthalmology, and a pipeline of internally developed and acquired dossiers.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Sanitas Acquisition Date. The following recognized amounts are provisional and subject to change:

  •

  amounts and useful lives for identifiable intangible assets and property, plant and equipment, pending the finalization of valuation efforts;

  •

  amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and

  •

  amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.

  The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the Sanitas Acquisition Date may result in retrospective adjustments to the provisional amounts recognized at the Sanitas Acquisition Date. These changes could be significant. The Company will finalize these amounts no later than one year from the Sanitas Acquisition Date.

	Amounts Recognized as of Acquisition Date(a)
Cash and cash equivalents	$	5,607
Accounts receivable(b)		25,645
Inventories		22,010
Other current assets		3,166
Property, plant and equipment		83,288
Identifiable intangible assets, excluding acquired IPR&D(c)		247,127
Acquired IPR&D		747
Other non-current assets		2,662
Current liabilities		(30,428	)
Long-term debt, including current portion(d)		(67,134	)
Deferred income taxes, net		(43,269	)
Other non-current liabilities		(6,049	)
Total indentifiable net assets		243,372
Goodwill(e)		204,791
Total fair value of consideration transferred	$	448,163

• (a)

  As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011. To date, the Company has not recognized any measurement period adjustments related to this acquisition.
  
  

  (b)

  The fair value of trade accounts receivable acquired was $25.6 million, with the gross contractual amount being $27.8 million, of which the Company expects that $2.2 million will be uncollectible.
  
  

  (c)

  The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Acquisition Date
Product brands		7	$	164,823
Product rights		7		43,027
Corporate brands		15		25,227
Partner relationships		7		14,050
Total identifiable intangible assets acquired		8	$	247,127

• (d)

  Effective December 1, 2011, Sanitas terminated its Facility Agreement and Revolving Credit Line Agreement, repaid the amounts outstanding under its credit facilities and cancelled the undrawn credit facilities.
  
  

  (e)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

  •

  cost savings, operating synergies and other benefits expected to result from combining the operations of Sanitas with those of the Company;

  •

  the value of the continuing operations of Sanitas's existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

  •

  intangible assets that do not qualify for separate recognition (for instance, Sanitas's assembled workforce).

   

  • The provisional amount of goodwill has been allocated to the Company's Branded Generics — Europe business segment as indicated in note 12.

  Acquisition-Related Costs

  The Company has incurred to date $8.4 million of transaction costs directly related to the Sanitas acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of Sanitas

  The revenues of Sanitas for the period from the Sanitas Acquisition Date to December 31, 2011 were $49.6 million and net loss was $7.0 million. The net loss includes the effects of the acquisition accounting adjustments of $16.3 million, the acquisition-related costs of $8.4 million and acquisition-related integration and restructuring costs of $7.1 million. The net loss attributable to noncontrolling interest for the period from the Sanitas Acquisition Date to December 31, 2011 was immaterial.

  Elidel®/Xerese®

  On June 29, 2011, the Company entered into a license agreement with Meda Pharma SARL ("Meda") to acquire the exclusive rights to commercialize both Elidel® Cream and Xerese® Cream in the U.S., Canada and Mexico. In addition, the Company and Meda have the right to undertake development work in respect of Elidel® and Xerese® products. The Company made an upfront payment to Meda of $76.0 million with an obligation to pay a series of potential milestone payments of up to $16.0 million and guaranteed royalties totaling $120.0 million in the aggregate through 2011 and 2012. Thereafter, the Company will pay a double-digit royalty to Meda on net sales of Elidel®, Xerese® and Zovirax®, including additional minimum royalties of $120.0 million in the aggregate during 2013-2015. The Company acquired the U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax® in the first quarter of 2011 (as described in note 4).

  The Elidel®/Xerese® transaction has been accounted for as a business combination under the acquisition method of accounting. The fair value of the upfront and contingent consideration, inclusive of minimum and variable royalty payments, was determined to be $437.7 million as of the acquisition date. As the majority of the contingent consideration relates to future royalty payments, the amount ultimately to be paid under this arrangement will be dependent on the future sales levels of Elidel®, Xerese®, and Zovirax®. In accordance with the acquisition method of accounting, the royalty payments associated with this transaction are treated as part of the consideration paid for the business, and therefore the Company will not recognize royalty expense in the consolidated statements of income (loss) for these products. The royalty payments are being recorded as a reduction to the acquisition-related contingent consideration liability. For the year ended December 31, 2011, the Company recognized a loss of $11.2 million due to changes in the fair value of acquisition-related contingent consideration. The loss was recognized as Acquisition-related contingent consideration in the consolidated statements of income (loss). During the year ended December 31, 2011, the Company made $28.5 million of acquisition-related contingent consideration payments, including royalties and milestones, related to this transaction. In January 2012, the Company made additional royalty and milestone payments totaling $27.5 million.

  The total fair value of the consideration transferred has been assigned to product brands intangible assets ($406.4 million), acquired IPR&D assets ($33.5 million) and a net deferred income tax liability ($(2.2) million). The product brands intangible assets have an estimated weighted-average useful life of approximately eight years. The acquired IPR&D assets relate to the development of a Xerese® life-cycle product. The Company has incurred to date $0.4 million of transaction costs directly related to the license agreement, which have been expensed as acquisition-related costs. In the period from the acquisition date to December 31, 2011, the revenue and earnings from the sale of Elidel® and Xerese® products under the license agreement were $38.5 million and $3.4 million, respectively. The earnings include the effects of the acquisition accounting adjustments of $26.4 million and the acquisition-related costs of $0.4 million.

  PharmaSwiss

  Description of the Transaction

  On March 10, 2011, the Company acquired all of the issued and outstanding stock of PharmaSwiss S.A. ("PharmaSwiss"), a privately-owned branded generics and OTC pharmaceutical company based in Zug, Switzerland. As of the acquisition date, the total consideration transferred to effect the acquisition of PharmaSwiss comprised cash paid of $491.2 million (€353.1 million) and the rights to contingent consideration payments of up to $41.7 million (€30.0 million) if certain net sales milestones of PharmaSwiss were achieved for the 2011 calendar year. The fair value of the contingent payments was determined to be $27.5 million as of the acquisition date. For the year ended December 31, 2011, the Company recognized a gain of $13.2 million due to changes in the fair value of acquisition-related contingent consideration. The gain was recognized as Acquisition-related contingent consideration in the consolidated statements of income (loss). The Company is determining whether a contingent consideration payment of $13.0 million (€10.0 million) is payable based on the net sales results for the 2011 calendar year.

  In connection with the transaction, in February 2011, the Company entered into foreign currency forward-exchange contracts to buy €130.0 million, which were settled on March 9, 2011. The Company recorded a $5.1 million gain on the settlement of these contracts, which was partially offset by a foreign exchange loss of $2.4 million recognized on the remaining €220.0 million bought to finance the transaction. The net foreign exchange gain of $2.7 million was recognized in Foreign exchange and other in the consolidated statement of income for the year ended December 31, 2011.

  PharmaSwiss is an existing partner to several large pharmaceutical and biotech companies offering regional expertise in such functions as regulatory, compliance, sales, marketing and distribution, in addition to developing its own product portfolio. Through its business operations, PharmaSwiss offers a broad product portfolio in seven therapeutic areas and operations in 19 countries throughout Central and Eastern Europe, including Serbia, Hungary, the Czech Republic and Poland, as well as in Greece and Israel.

  Assets Acquired and Liabilities Assumed

  The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The following recognized amounts are provisional and subject to change:

  •

  amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction, and the filing of PharmaSwiss pre-acquisition tax returns; and

  •

  amount of goodwill pending the completion of the income tax assets and liabilities.

• The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recognized at the acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2011 (as adjusted)
Cash and cash equivalents	$	43,940		$	—		$	43,940
Accounts receivable(c)		63,509			(1,880	)		61,629
Inventories(d)		72,144			(1,825	)		70,319
Other current assets		14,429			—			14,429
Property, plant and equipment		9,737			—			9,737
Identifiable intangible assets(e)		202,071			7,169			209,240
Other non-current assets		3,122			—			3,122
Current liabilities		(46,866	)		826			(46,040	)
Deferred income taxes, net		(18,176	)		11,568			(6,608	)
Other non-current liabilities		(720	)		—			(720	)
Total indentifiable net assets		343,190			15,858			359,048
Goodwill(f)		171,105			(11,445	)		159,660
Total fair value of consideration transferred	$	514,295		$	4,413		$	518,708

• (a)

  As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.
  
  

  (b)

  The measurement period adjustments primarily reflect: (i) changes to deferred taxes based on estimates of income tax rates; (ii) changes in the estimated fair value of certain intangible assets; (iii) an increase in the total fair value of consideration transferred pursuant to a working capital adjustment provision of the purchase agreement; and (iv) the tax impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company's previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.
  
  

  (c)

  The fair value of trade accounts receivable acquired was $61.6 million, with the gross contractual amount being $66.8 million, of which the Company expects that $5.2 million will be uncollectible.
  
  

  (d)

  Includes $18.2 million to record PharmaSwiss inventory at its estimated fair value.
  
  

  (e)

  The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)		Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments		Amounts Recognized as of December 31, 2011 (as adjusted)
Partner relationships(1)		7	$	130,183	$	—	$	130,183
Product brands		9		71,888		7,169		79,057
Total identifiable intangible assets acquired		7	$	202,071	$	7,169	$	209,240

• • (1)

    The partner relationships intangible asset represents the value of existing arrangements with various pharmaceutical and biotech companies, for whom PharmaSwiss provides regulatory, compliance, sales, marketing and distribution functions.
    
    

  (f)

  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

  •

  cost savings, operating synergies and other benefits expected to result from combining the operations of PharmaSwiss with those of the Company;

  •

  the value of the going-concern element of PharmaSwiss existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

  •

  intangible assets that do not qualify for separate recognition (for instance, PharmaSwiss assembled workforce).

• • The provisional amount of goodwill has been allocated to the Company's Branded Generics — Europe business segment as indicated in note 12.

  Acquisition-Related Costs

  The Company has incurred to date $2.1 million of transaction costs directly related to the PharmaSwiss acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

  Revenue and Net Loss of PharmaSwiss

  The revenues of PharmaSwiss for the period from the acquisition date to December 31, 2011 were $199.9 million and net loss was $23.5 million. The net loss includes the effects of the acquisition accounting adjustments of $41.6 million, the acquisition-related costs of $2.1 million and acquisition-related restructuring and integration costs of $5.6 million.

  Tetrabenazine

  On June 19, 2009, the Company acquired the worldwide development and commercialization rights to the entire portfolio of tetrabenazine products, including Xenazine® and Nitoman®, held by Cambridge Laboratories (Ireland) Limited and its affiliates (collectively, "Cambridge"). The Company had previously obtained certain licensing rights to tetrabenazine in the U.S. and Canada through the acquisition of Prestwick Pharmaceuticals, Inc. ("Prestwick") in September 2008. By means of this acquisition, the Company obtained Cambridge's economic interest in the supply of tetrabenazine for the U.S. and Canadian markets, as well as for a number of other countries in Europe and around the world through existing distribution arrangements. In addition, the Company assumed Cambridge's royalty obligations to third parties on the worldwide sales of tetrabenazine.

  This acquisition was accounted for as a business combination under the acquisition method of accounting. The total purchase price comprised cash consideration of $200.0 million paid on closing, and additional payments of $12.5 million and $17.5 million due to Cambridge on the first and second anniversaries of the closing date, respectively, both of which additional payments had been paid by December 31, 2011. These additional payments were fair valued at $26.8 million, using an imputed interest rate comparable to the Company's available borrowing rate at the date of acquisition, and were recorded in long-term debt (as described in note 14). No gain or loss was recognized in conjunction with the effective settlement of the contractual relationship between Prestwick and Cambridge as a result of this acquisition, as the pre-existing contracts could have been terminated without financial penalty. The Company incurred $5.6 million of costs related to this acquisition, which were expensed as acquisition-related costs in the second quarter of 2009.

  The total fair value of the consideration transferred had been assigned to inventory ($1.1 million), product rights intangible assets ($189.7 million) and acquired IPR&D assets ($36.0 million). The product rights intangible assets have an estimated weighted-average useful life of approximately nine years. The projected cash flows from the products were adjusted for the probabilities of genericization and competition from the IPR&D projects described below.

  The acquired IPR&D assets related to a modified-release formulation of tetrabenazine under development initially for the treatment of Tourette's Syndrome (BVF-018) and an isomer of tetrabenazine (RUS-350). A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. A risk-adjusted discount rate of 20% was used to present value the projected cash flows. The fair values assigned to BVF-018 and RUS-350 were $28.0 million and $8.0 million, respectively. Based on the results of development efforts completed subsequent to the acquisition date, the Company decided to terminate the RUS-350 project in 2009, having determined that the isomer was unlikely to provide meaningful benefits to patients beyond that provided by tetrabenazine, and recorded a charge of $8.0 million to write off the related asset to acquired IPR&D expense. In addition, as described in note 6, the Company terminated the development of BVF-018 in 2010, and recorded a charge of $28.0 million to write off the related asset to acquired IPR&D expense.

  Unaudited Pro Forma Impact of Material Business Combinations

  The following table presents unaudited pro forma consolidated results of operations for the years ended December 31, 2011 and 2010, as if the PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions had occurred as of January 1, 2010 and the Merger had occurred as of January 1, 2009. The unaudited pro forma information does not include the license agreement to acquire the rights to Elidel® and Xerese®, as the impact is immaterial to these pro forma results and it was impracticable to obtain the necessary historical information as discrete financial statements for these product lines were not prepared. In addition, the unaudited pro forma information does not include the Dermik acquisition, as it was impracticable to obtain the necessary historical information as discrete financial statements were not prepared.

	2011		2010
Revenues	$	2,927,422	$	2,624,198
Net income (loss)		154,895		(323,971	)
Basic earnings (loss) per share	$	0.51	$	(1.08	)
Diluted earnings (loss) per share	$	0.47	$	(1.08	)

• The unaudited pro forma consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of the Company, Valeant, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa. Except to the extent realized in the year ended December 31, 2011, the unaudited pro forma information does not reflect any cost savings, operating synergies and other benefits that the Company may achieve as a result of the Merger or PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions, or the costs necessary to achieve these cost savings, operating synergies and other benefits. In addition, except to the extent recognized in the year ended December 31, 2011, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with Valeant, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa.

  The unaudited pro forma information is not necessarily indicative of what the Company's consolidated results of operations actually would have been had the PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions and the Merger been completed on January 1, 2010 and January 1, 2009, respectively. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company. The unaudited pro forma information reflects primarily adjustments consistent with the unaudited pro forma information related to the Merger and the following unaudited pro forma adjustments related to PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa:

  •

  elimination of Valeant, PharmaSwiss's, Sanitas's, Ortho Dermatologics's, iNova's and Afexa's historical intangible asset amortization expense;

  •

  additional amortization expense related to the provisional fair value of identifiable intangible assets acquired;

  •

  additional depreciation expense related to fair value adjustment to property, plant and equipment acquired;

  •

  elimination of interest expense related to Valeant's legacy 8.375% and 7.625% senior unsecured notes and senior secured term loan that were repaid as part of the Merger transaction;

  •

  additional interest expense associated with the financing obtained by Valeant in connection with the various acquisitions;

  •

  reduced non-cash interest expense related to the accretion of the principal amount of the 4.0% Convertible Notes as a result of the fair value adjustment;

  •

  elimination of the amortization of deferred financing costs recorded by Biovail related to its senior secured credit facility, which was terminated in connection with the Merger;

  •

  additional share-based compensation expense related to unvested stock options and RSUs issued by Biovail to replace Valeant's stock options and RSUs;

  •

  elimination of Valeant's acquisition-related costs and Merger-related restructuring charges, which will not have a continuing impact on the Company's operations; and

  •

  the exclusion from pro forma earnings in the year ended December 31, 2011 of the acquisition accounting adjustments on Valeant's, PharmaSwiss', Sanitas', Ortho Dermatologics', iNova's and Afexa's inventories that were sold subsequent to the acquisition date of $27.3 million, $18.8 million, $5.2 million, $0.7 million, $1.2 million and $2.1 million, respectively, and the exclusion of PharmaSwiss', Sanitas', Ortho Dermatologics', iNova's and Afexa's acquisition-related costs of $2.1 million, $8.4 million, $5.3 million, $3.7 million and $3.3 million, respectively, in the year ended December 31, 2011, and the inclusion of those amounts in pro forma earnings for the corresponding periods of 2010.

• In addition, all of the above adjustments were adjusted for the applicable tax impact.

  Other

  In 2011, the Company acquired Ganehill Pty Limited ("Ganehill"), an Australian company engaged in the marketing and distribution of skin care products under the Invisible Zinc® brand. The fair value of the total cash and contingent consideration transferred to effect the acquisition of Ganehill was $19.4 million, which was assigned primarily to product brands intangible assets ($12.7 million) and goodwill ($5.4 million). In addition, the Company acquired the product rights in Greece for Procef®, Niflamol®, Superace®, and Monopril® for total consideration of $12.0 million, which was assigned primarily to identifiable intangible assets. The Company also acquired certain other businesses, including the Canadian rights to Aczone™, Delatestryl® and Viroptic®, for approximately $17.7 million in the aggregate, which was assigned primarily to identifiable intangible assets. The Company also acquired from Fleming and Company, Pharmaceuticals the product rights to a number of brands, including Ocean® and Nephrocaps®. The fair value of the total consideration transferred was $15.7 million, which was assigned primarily to product brands intangible assets. The Company does not consider these acquisitions to be material, individually or in the aggregate, to its consolidated results of operations and is therefore not presenting actual or pro forma financial information.