Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions -- Exemption from the requirement to include the financial statement disclosure under section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) -- The Filer wants relief from the requirement to include in a business acquisition report the financial statements prescribed by section 8.4 of NI 51-102. The issuer will instead provide abbreviated financial statements of the business acquired.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.

TRANSLATION

July 3, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the "Jurisdictions")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

(the "Filer")

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the "Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting the Filer from the requirement to include the financial statement disclosure under section 8.4 of Regulation 51-102 Continuous Disclosure Obligations ("Regulation 51-102") in the business acquisition report ("BAR") of the Filer relating to the Acquisition and the Related Acquisitions (as such terms are defined herein) (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Autorité des marchés financiers (the "AMF") is the principal regulator for this application;

(b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 Passport System ("Regulation 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the "Passport Jurisdictions"); and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 Definitions and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer.

1. The Filer was formed under the Business Corporations Act (Ontario) on February 18, 2000, as a result of the amalgamation of TXM Corporation and Biovail Corporation International. The Filer was continued under the Canada Business Corporations Act effective June 29, 2005. On September 28, 2010, the Filer completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of the Filer (the "Merger"). In connection with the Merger, the Filer was renamed "Valeant Pharmaceuticals International, Inc."

2. The Filer is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of neurology, dermatology and branded generics. The Filer markets and sells its products in the United States, Canada, Australia and New Zealand, and has additional operations in Europe, Latin America, South East Asia and South Africa.

3. The Filer's head office is located in Montréal, Québec, Canada.

4. The Filer is a reporting issuer in each of the Jurisdictions and Passport Jurisdictions and is an "SEC issuer" as defined in Regulation 51-102.

5. The Filer's common shares are listed on the Toronto Stock Exchange and on the New York Stock Exchange under the symbol "VRX".

6. On July 15, 2011, the Filer entered into an asset purchase agreement (the "Asset Purchase Agreement") to acquire certain assets (the "Assets") of the U.S. Ortho Dermatologics division (the "Business") of Jansen Pharmaceuticals, Inc. (the "Seller"), a consolidated subsidiary of Johnson & Johnson (the "Parent"), for a total purchase price of approximately USD $345 million (the "Acquisition"). The Assets included the rights to certain prescription brands in the United States. The Asset Purchase Agreement also granted the Filer a right to negotiate with the Seller for the purchase, individually or in the aggregate, of analogous rights in Brazil (the "Brazilian Related Business") and Canada (the "Canadian Related Business", and together with the Brazilian Related Business, the "Related Businesses") under a separate agreement. The Acquisition was completed on December 12, 2011. Following the completion of the Acquisition, the Filer and the Seller reached an agreement with respect to the Related Businesses and the Filer subsequently completed the acquisition of the Canadian Related Business on February 29, 2012 and the Brazilian Related Business on April 4, 2012 (collectively, the "Related Acquisitions").

7. Ortho Dermatologics is a specialty healthcare division of the Seller that discovers, develops, distributes and commercializes products for dermatological conditions. As the Business and the Related Businesses were run by the Seller together with other businesses, there are no separate financial statements for the specific assets and liabilities comprising the Business and the Related Businesses.

8. As a result of the Business being "significant" (as defined in Rule 3-05 of Regulation S-X of the 1934 Act), the Filer filed certain audited financial statements in the U.S. following the completion of the Acquisition.

9. On August 23, 2011, the Filer submitted a pre-clearance request to the SEC to include certain abbreviated financial statements (the "Abbreviated Financial Statements") for the purposes of its U.S. filings. The SEC consented to the pre-clearance request on October 26, 2011.

10. The Abbreviated Financial Statements consist of the following:

(a) Audited special-purpose statement of assets that comprise the Business as of January 2, 2011 and the related statement of revenues and expenses for the fiscal year ended January 2, 2011; unaudited special-purpose statement of assets that comprise the Business as of October 2, 2011, and the related statements of revenues and expenses for the nine-month periods ended October 2, 2011 and October 3, 2010.

(b) Unaudited pro forma condensed combined statements of income of the Filer for the year ended December 31, 2010 and the nine-month period ended September 30, 2011, giving effect to the Filer's acquisition of the Business; unaudited pro forma condensed combined balance sheet of the Filer as of September 30, 2011, giving effect to the Acquisition.

11. The Abbreviated Financial Statements were included as an exhibit to a Form 8-K/A Current Report (the "8-K/A") filed by the Filer with the SEC on February 17, 2012. The 8-K/A was filed in the Jurisdictions and the Passport Jurisdictions on April 23, 2012.

12. The Filer has filed in the Jurisdictions and the Passport Jurisdictions its 2011 audited consolidated annual financial statements (the "Annual Financial Statements") that reflect the Acquisition and the Business.

13. For the purposes of profit or loss test (the "P&L Test") contained in Section 8.3(2)(c) of Regulation 51-102, the proportionate share of the 2010 consolidated specified profit or loss of the Business equalled approximately 26.3% of the 2010 consolidated specified profit or loss of the Filer. Accordingly, the Acquisition constitutes a significant acquisition for the purposes of Part 8 of Regulation 51-102 which requires the filing of a BAR within 75 days after the acquisition date pursuant to Section 8.2 of Regulation 51-102. The Acquisition fell significantly below the thresholds for the asset test and the investment test contained in Sections 8.3(2)(a) and (b) of Regulation 51-102.

14. As the Related Businesses were under common control with the Business prior to the Acquisition, the Related Acquisitions would constitute an acquisition of related businesses pursuant to Part 8 of Regulation 51-102.

15. Pursuant to Section 8.4(8) of Regulation 51-102, the financial statements required to be included in the BAR must be presented separately for the Business and each Related Business, except for the periods during which they were under common control or management.

16. The Filer is unable to prepare the required financial statements for the Business in accordance with Section 8.4 of Regulation 51-102 for the following reasons:

(a) The Business was not accounted for as a separate legal entity of the Seller's or the Parent's business.

(b) The Business did not represent a separate operating segment or external reporting unit within the Seller's or the Parent's business. It is a product portfolio within the Parent's pharmaceutical segment.

(c) Stand-alone financial statements of the Business have never been prepared.

(d) Historically, the assets and liabilities of the Business have generally been commingled with the assets and liabilities of other businesses of the Seller. Therefore, balance sheet information which reflects only the assets acquired and liabilities assumed is most relevant to the users of the Filer's financial information. Similarly, income and cash flow information which reflects only the revenue and direct expenses of the assets acquired and liabilities assumed is most relevant to such users of the Filer's financial information.

(e) The Seller only allocated certain corporate expenses and certain assets and liabilities to the Business, not including interest expense, corporate overhead expenses, and income taxes since any allocation of them would be subjective.

(f) The Filer was not provided with and does not have access to the historical financial information of the Seller and the Parent that would be required in order to prepare such financial statements for the Business. Accordingly, it is not possible to prepare such financial statements.

17. The Related Businesses would not be considered "significant" under Section 8.3 of Regulation 51-102 individually or in the aggregate and would have only a de minimis effect on the level of significance of the Business for the purposes of the P&L Test, the asset test and the investment test. The 2010 combined full year revenue for the Related Businesses was approximately USD $2.2 million, representing less than 0.2% of the Filer's revenue of USD $1.2 billion for the same year. The Related Businesses were marginally profitable in 2010. The combined gross margin for the Related Businesses was approximately 80%, with operating expenses representing approximately 30% of revenue. The total assets of the Related Businesses as of December 31, 2010 were approximately USD $370,000, which represented only 3.7% of the total assets of the Business of USD $10.025 million and 0.003% of total assets of the Filer of USD $10.8 billion. The total purchase price for the Related Businesses of approximately USD $5 million represents approximately 1% of the combined purchase price of approximately USD $350 million paid for the Business and the Related Businesses.

18. The Filer is unable to prepare the required financial statements for the Related Businesses in accordance with Section 8.4 of Regulation 51-102 for the following reasons:

(a) The Seller did not maintain product level income statement or balance sheet information for the assets comprising the Related Businesses.

(b) The Related Businesses are managed under local legal entities, separate from the Business. These Related Businesses do not receive direct promotional support and therefore do not have direct marketing and sales expenses allocated to them.

(c) No other operating expenses are allocated at the level of the assets that make up the Related Businesses since any allocation of them would be subjective.

(d) The Filer does not have access to the historical financial information of the Seller and the Parent that would be required in order to prepare such financial statements for the Related Businesses. Accordingly, it is not possible to prepare such financial statements.

19. No financial statement will be included in the BAR with respect to the Related Businesses considering that they are immaterial. As a result, the Filer proposes to include the Abbreviated Financial Statements in the BAR in respect of the Acquisition and the Related Acquisitions.

20. With the exception of the failure to file a BAR in respect of the Acquisition and the Related Acquisitions by the deadline provided for in Part 8 of Regulation 51-102, the Filer is not in default as to any other requirement under the securities legislation of the Jurisdictions and the Passport Jurisdictions.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that the Filer files the BAR as quickly as possible in respect of the Acquisition and the Related Acquisitions that includes the Abbreviated Financial Statements.

"Louis Morisset"
Superintendent, Capital Markets
Autorité des marchés financiers